The lower house of Brazilian Congress is expected to fast-track the government’s proposal for a new fiscal framework this Wednesday, which would allow the proposal to go to a floor vote next week without the need for analysis at the committee level.
Finance Minister Fernando Haddad took part in a joint public hearing earlier this Wednesday, organized by three of the House’s standing committees, in a last attempt to convince lawmakers of the necessity of approving the new fiscal framework. Visibly calm, he seemed to share the government’s confidence in a successful outcome.
Getting the new fiscal rules approved is of primordial importance for the Luiz Inácio Lula da Silva administration. The framework introduces new rules to prevent public debt from ballooning while giving the government leeway to increase spending from one year to the next.
Lula and Mr. Haddad decided to accept a draft presented by Congressman Cláudio Cajado on Monday, which included slightly stricter provisions than the Finance Ministry’s original proposal. The government understands that the “core” of the proposal was maintained and that, given its difficulties in securing a majority in Congress, it was best to compromise and accept this alternative version.
During today’s hearing, Mr. Haddad faced more questions about the government as a whole than specific points of the fiscal framework proposal. Lawmakers criticized Lula’s tough talk against the Central Bank’s monetary policy, which has kept the benchmark interest rate at 13.75 percent since August 2022.
Mr. Haddad argued that Lula’s criticisms are “part of democracy” and not a source of pressure on Central Bank head Roberto Campos Neto, nor an attack on the bank’s autonomy. The current interest rate was also criticized in comments from both government-supporting and opposition lawmakers — including allies of former President Jair Bolsonaro.
Mr. Haddad also defended that state-controlled oil giant Petrobras’s new pricing policy, announced yesterday, will help reduce fuel prices for consumers and contribute to slowing inflation, which currently runs at 4.18 percent a year.
The finance minister reiterated that the new fiscal rules will “clean up” public accounts without impacting social policies, considered a priority for the Lula government — for example, they ensure that adjustments to the minimum wage and payment of the Bolsa Família social subsidy are not affected by sanctions triggered in case of non-compliance with fiscal goals.
The fiscal framework will replace the spending cap approved in 2016, which prevents public expenditure from growing above the previous year’s inflation rate. The new rule will allow spending to grow above inflation, dependent instead on public revenue.
The final text presented this week includes amendments added by House Speaker Arthur Lira. Considering the influence Mr. Lira holds over the majority of the Lower House, the government therefore expects the proposal to be approved without any major obstacles.
Other leaders of center and right-wing parties also backed the proposal, mainly because it was well received by the market. Even within Mr. Bolsonaro’s Liberal Party, 30 out of 99 representatives are expected to vote with the government, according to party chairman Valdemar Costa Neto.
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