The political bias of the fiscal adjustment package announced by the government – expected for months by economic agents – created additional difficulties for its advancement in Congress. Under the leadership of Minister Fernando Haddad (Finance), the measures ignored the high tensions generated by uncertainties in public accounts, reflected in indicators such as exchange rate and interest rates, prioritizing electoral objectives.
The distrust of the market and parliamentarians only increased, especially with the inclusion of the proposal to increase the income tax exemption for those earning up to R$5,000, representing a loss of revenue worth tens of billions of reais.
The challenge now, for President Luiz Inácio Lula da Silva (PT) and his economic team, is to negotiate the proposals that will be sent to the Legislature, seeking concrete results in the shortest possible time. According to analysts and politicians, the bet on the social justice narrative to support the fiscal package hides divergent political interests, parliamentary resistance and real impacts on the economy.
After speaking with leaders of the Chamber and Senate and publicly announcing the package, the government intends to send to deputies, later this year, at least a Proposed Amendment to the Constitution (PEC) and a Complementary Bill (PLP) with the aim of promote changes in mandatory expenses related to civil servants’ salaries, salaried employees’ income, military pensions and social benefits, within a tight calendar. However, there are not even drafts of these initiatives available for analysis, which should only happen next week.
The intention to vote on the proposals before the approval of the Budget Guidelines Law (LDO) and the Annual Budget Law (LOA), scheduled for December 23, faces major challenges. The expectation is that the fiscal package will advance in the Chamber, but will face pauses in the Senate. The income reform, the final stage of the tax reform, will only be presented by the government in 2025, with analysis expected in the second half of the year.
The president of the Senate, Rodrigo Pacheco (PSD-MG), stated this Thursday (28) that the tax package will be a priority. “We will have three weeks of hard work to conclude the year with the LOA and LDO approved. Cost containment will also be a priority,” he declared. After meeting with Pacheco and party leaders, minister Fernando Haddad said he felt a “receptive atmosphere”, but acknowledged that three weeks is a short period of time to discuss the proposed exemption from Income Tax (IR) for salaries up to R $5 thousand.
“Our commitment to the government is that, as soon as the Chamber approves the PEC and the PLP, the Senate will submit it directly to the plenary to ratify, with revisions, what is defined in the package”, guaranteed Pacheco. However, there is still a lack of a firmer position on the part of the President of the Chamber, Arthur Lira (PP-AL).
Analysts rule out time for Congress to approve fiscal package in 2024
According to parliamentary advisors interviewed by People’s Gazetteit will be necessary, to complete the agenda, to convene deliberative sessions from Monday to Thursday in the coming weeks. In fact, a Congress session could take place on Wednesday (4), after the vote by the Mixed Budget Committee (CMO), with the aim of settling pending projects and vetoes.
Political scientist Ismael Almeida considers it practically impossible for the package to be approved this year, especially since tax reform occupies the top of the list of priorities, and the time until the parliamentary recess is limited. “There will be, at a minimum, a PEC, a PLP and other bills involved. There is no time”, he assesses. He also emphasizes that the pace of processing will depend on the market’s reaction to the announcement, a factor that usually directly influences Congress.
In the best case scenario, the texts can be approved in the Chamber, but are unlikely to advance in the Senate, as occurred with the regulation of tax reform at the turn of last year. Even so, Almeida recognizes that there may be an articulation of interests to approve some measure in the package in record time, “even if just to send a positive signal to the market”.
For an expert, the government prioritized the political narrative and forgot the economy
For Leonardo Barreto, from political consultancy Think Policy, the way the government presented the package highlights its priority in the political process: the construction of a narrative. However, this approach does not contribute to solving the problem of lack of trust in economic management.
“Including the income tax exemption for those earning up to R$5,000 only complicated the announcement and made the dollar almost reach R$6. Despite this, Planalto will consider the communication strategy a success, as it managed to divert the focus from the cut of spending and redirect it to topics such as tax justice and income inequality”, he analyzes.
Increasing the income tax exemption range, Lula’s campaign promise, became a priority in his third term. Initially considered audacious because of the high tax exemption, the measure generated skepticism even among allies in Congress. Despite this, Lula insisted and technicians looked for alternatives to make it viable before 2026. In the market, estimates pointed to a fiscal impact of up to R$100 billion, but the government’s economic team projects R$35 billion.
With the promise to save R$70 billion in two years, Haddad presented general outlines of the measures in an almost eight-minute speech on national radio and TV on Wednesday night (27). The actions involve changes in mandatory spending, which the minister chose not to call cuts, preferring the term “reinforcement of the fiscal framework”.
Among the proposals are changes to salary bonuses, military pensions, parliamentary amendments and the rules for adjusting the minimum wage. “We have already returned to the worker the real gain in the minimum wage. And with the new proposed rules, the floor will continue to rise above inflation, in a sustainable manner and within the new fiscal rule”, stated Haddad.
Haddad blamed Bolsonaro’s government for fiscal tightening and ruled out privatizations
In a press conference this Thursday (28), minister Fernando Haddad attributed responsibility for the fiscal scenario to the management of former president Jair Bolsonaro (PL), ruling out privatizations and the “make-up adopted by the previous government”. He also promised to intensify the fine-tooth comb on privileges, to ensure that public policies serve “those who really need it”.
In the field of military pensions, Haddad announced changes such as an increase in the minimum age for the reserve and greater rigor in pension rules. The expected annual savings with these changes is R$2 billion. “These are fair and necessary changes”, highlighted the minister.
In relation to the salary bonus, the maximum value will continue to be set at R$2,640 (equivalent to two minimum wages), but will be corrected only for inflation, no longer having real increases, as currently occurs with the minimum wage.
Another highlighted point was the limitation of super salaries in public service, with corrections to legal loopholes that allow payments above the constitutional ceiling. “The measures combat privileges that are incompatible with the principle of equality. We will correct excesses and ensure that all public agents respect the constitutional ceiling”, concluded Haddad.
Regarding parliamentary amendments, the minister stated that the government, in partnership with the Federal Supreme Court (STF) and Congress, improved the Budget rules to contain the dynamics of these resources and direct more funds to health.
Representative Gustavo Gayer (PL-GO), one of the many opposition parliamentarians, highlighted on his social networks the rise of the dollar, which reached a record price close to R$6 — above the peak recorded during the pandemic (R$5, 85) — shortly after Haddad’s announcement about the increase in Income Tax exemption.
“On the day that an unfavorable electoral survey comes out, the minister avoided talking about spending cuts and still announced a reduction in revenue”, criticized Gayer. “The result of this is a further increase in the cost of living for Brazilians, directly impacting the price of bread, gasoline and meat”, illustrated the parliamentarian.
PSDB and businesspeople criticize populist tone and “make-believe package”
In a statement, the president of the PSDB, Marconi Perillo, stated that Brazil needs a real fiscal shock, and not a “make-believe package” like the one presented by the federal government. Perillo criticized the lack of effective cuts in the announced measures, highlighting that areas such as superfluous presidential spending, tax subsidies and the deficit of state-owned companies were ignored.
According to him, the package highlights the lack of responsibility with public accounts, reflecting the tone of the current administration, which prioritizes increasing spending and taxes.
For businessman and business advisor Ismar Becker, despite the harmful effects of insufficient fiscal adjustment, the indictment of former president Jair Bolsonaro and 36 other people for alleged attempted coup d’état will continue to dominate the political scene until the trial of those involved. “With the former president’s impediment to being a candidate in 2026, Lula loses his favorite opponent and, consequently, the speech in defense of democracy, while the country heads towards the economic abyss”, he analyzes.
Economist and investment consultant Vandyck Silveira assesses that the government, after much internal debate, presented a proposal that was even more problematic than expected.
“This income tax exemption was a shot in both feet, demonstrating complete disregard for fiscal balance. In addition to representing a significant loss of revenue, it also adds inflationary pressure,” he stated. He also sees little impact on containing the extra increase in the minimum wage, classifying it as “another lost opportunity”.
