Guedes’ reforms stall in the Chamber due to lack of government effort

Announced as priorities of the economic team for 2021, the administrative and tax reforms should not go away this year due to the lack of commitment of the Jair Bolsonaro government and the anticipation of the electoral dispute, in the evaluation of Planalto’s allies.

The two reforms are often cited as fundamental for improving the country’s fiscal situation and opening up space in the public accounts to expand investments.

However, errors in the political negotiation of both practically made the changes unfeasible until the end of the administration – the very top of Congress publicly admits that the window of approval of controversial matters ended now in November.

Faced with the difficulty in unlocking this agenda, Bolsonaro has already admitted that, if they are not approved by December, tax and administrative reforms will not advance in 2022, when the country will undergo elections.

“These reforms have to take place in the first year of each government. We are practically finishing the third year [de governo]. If you don’t approve this year, next year you can forget,” the president said at the end of October.

The window for Minister Paulo Guedes (Economy) to complete the reform plan is short. Political support for the proposals will wane next year, when Bolsonaro plans to seek re-election.

Guedes’ allies say that the minister’s priority in recent months has been to find a solution for the 2022 Budget, pressured by the increase in mandatory expenses and court rulings (precatório).

In addition, the economic team participates in the government’s task force to ensure that next year’s accounts include Bolsonaro’s demands, such as strengthening spending in the social area (Auxílio Brasil) and measures that meet the president’s electoral base (financial assistance to truck drivers).

Without the effort of Planalto Palace, the reformist agenda remains without prospects for a vote in Congress.

Delivered in July 2020, the first phase of Guedes’ tax reform has not yet progressed to the Chamber, where it began to be processed. The project that unifies PIS and Cofins in a new tax (CBS, Contribution on Goods and Services) does not even have a report.

There was an effort by government officials to try to vote on the proposal in July. But, due to lack of consensus and pressure from businessmen, the project stalled.

“We are still meeting with the sectors and with the Revenue [Federal] and we are going to start preparing the report”, said the rapporteur of the proposal, deputy Luiz Carlos Motta (PL-SP).

The Chamber was also discussing a PEC (proposed amendment to the Constitution) that called for bringing together federal, state and municipal taxes on consumption in a single tax. The government and the president of the Chamber, Arthur Lira (PP-AL), acted to bury this proposal.

In exchange, they tried to implement a sliced ​​reform, as Guedes defends. But the first pillar remains stuck.

The government proposed to merge PIS and Cofins into CBS, at a 12% rate. The main objective mentioned by the government was to simplify the legislation.

According to the Internal Revenue Service, taxes today are cumulative along the production chain and the rules on how to discount the amount already paid on other stages are varied and subjective.

More than 70,000 processes at the Revenue and Carf (Board of Tax Resources Administration) question these charges.

On the other hand, sectors such as services complain about the proposed rate saying that there would be an increase in the tax burden. In the face of criticism, Guedes has already signaled a lower rate.

The government managed to pass another pillar of the tax reform — changes in the IR (Income Tax).

But the Senate is on the way to shelve the proposal or disfigure it, and has resisted Lira’s offensive to try to get the text that, according to the president of the Chamber, is crucial to make permanent the income transfer program that will replace Bolsa Família , Brazil Aid.

The administrative reform, sent by the government in September 2020, has always been seen as one of the most difficult to be approved due to the strong lobbying of civil servants in Congress.

To reduce resistance, the president of the Chamber from the beginning adopted a speech that the changes sought to optimize the public service and that they did not alter acquired rights, only valid for new employees. Still, the text stuck.

The PEC (proposed amendment to the Constitution) was approved by the special commission in the early hours of September 24th. In order for the proposal to move forward, base parties changed the composition of the collegiate body to reverse a defeat — 7 of the 8 Novo deputies were included in the group, including incumbents and substitutes.

Therefore, the approval by 28 to 18 was considered by many as artificial, demonstrating the difficulty that the proposal would face in the plenary.

Lira himself, in recent speeches, made it clear that there was little effort by the government to approve the unpopular PEC.

“I defended and defend the administrative reform. It has been stopped without coming to the plenary for lack of popular support. For lack of support from those who defend a lighter state. Due to the government’s lack of mobilization, I put this clearly, it has no interest in this situation,” he said in an interview with CNN.

For the president of the Servir Brasil parliamentary front, deputy professor Israel Batista (PV-DF), it will be difficult for the government to resume processing the PEC.

“I don’t think they can turn around, because the victory in the special committee was like defeat. They won by a small margin, considering that 7 of the 8 members were placed at the last minute,” he said.

The deputy said that the mobilization against the PEC was small while the processing took place in the special commission. “Afterwards, however, there was an injection of spirit, a stronger mobilization in the networks, in the streets. It is difficult for the government to be able to resuscitate this PEC”, he said.

Understand the reforms

Administrative

Main points:

• Stability forecast for all servers, even with the possibility of dismissal for insufficient performance
• Transitional cut in working hours by up to 25%, with corresponding reduction in remuneration in case of fiscal crisis
• Permission for temporary employment for a maximum period of ten years
• Locks for “privileges” and the end of compulsory retirement as a form of punishment

Processing:

• Sent by the government to Congress in September 2020, it was approved by a special committee in September of this year, but there is still no forecast for a plenary vote

tax

Main points:

• Unifies PIS and Cofins into a new tax (CBS, Contribution on Goods and Services), with a 12% rate
• Reformulates Income Tax rules

Processing:

• The first stage, delivered by the government in July 2020, has not progressed to the Chamber, it does not even have a report. The Income Tax reform was approved by the Chamber, but it is stalled in the Senate