President Bolsonaro (center) and Economy Minister Paulo Guedes (R). Photo: Marcos Corrêa/PR

The beginning of the Jair Bolsonaro government was defined by the far-right president’s decision not to form a coalition in Congress. Claiming that he was putting an end to horse-trading in Brasília, Mr. Bolsonaro gambled on a new kind of relationship between the Executive and the Legislative.

Congress was given autonomy to further the government’s agenda in any way it saw fit. If the president were to be unhappy with the results,

he would resort to his veto power to make the changes he deemed necessary. At the same time, Congress could suspend the vetoes it would inconvenient. In the first nine months of the Bolsonaro government, this is the way all bills have been passed.</p> <p>Without a coalition or any form of support base for the sitting administration, Brazil&#8217;s <a href="https://brazilian.report/power/2019/06/14/brazil-pension-reform-report/">pension reform </a>progressed through the Congress, fueled by the urgency to make the country&#8217;s social security system more sustainable, and the economically liberal leanings of the new wave of elected representatives and senators. Led by <a href="https://brazilian.report/power/2019/07/11/pension-reform-rodrigo-maia-power-brokers/">Rodrigo Maia</a> and Davi Alcolumbre—the heads of the House and Senate, respectively—debates around the reform agenda have gained a new impetus and some results have been seen already.</p> <p>There has been the <a href="https://brazilian.report/power/2019/09/23/jair-bolsonaro-anti-bureaucracy-legislation-explained/">Economic Freedom</a> decree, the new <a href="https://brazilian.report/power/2019/07/31/brazil-next-revolution-should-come-telecoms/">Telecom Law</a>, the reviewing of social security benefits, and the pension reform itself. Still to come, there is the tax reform, federative pact, administrative reform, Central Bank independence, the <a href="https://brazilian.report/money/2019/09/05/state-finances-biggest-risk-brazilian-economy/">Mansueto plan</a>, and much more.</p> <p>Dealing with modest growth, Brazil has difficulty recouping investments, as the public sector is hobbled and unable to spend. Distortions in the tax system, for instance, have undermined the productivity of the private sector and investor confidence. Therefore, it is imperative to continue approving structural reforms. However, the incoming overhauls of the tax and administrative system are much more complex than the pension reform, involving a much wider range of diffuse interests.</p> <h2>The taxing tax reform</h2> <p>With the complexity of these upcoming reforms, the Executive needs to take a leading role to negotiate differences between warring groups. It must construct a proposal which can be passed, maintaining constant dialogue with interested parties. Politics with a capital P. Without this, the chances of a tax reform next year are slim; an administrative reform would be but a pipe dream.&nbsp;</p> <p>In other words, it means doing what the government was unable to during the pension reform process. The bill is only expected to be approved at the end of October, meaning it took eight months to ratify, and one-third of the savings forecast from the measure have already been diluted. Historically, government proposals are quick to pass in the first year of a president&#8217;s term, going off the premise that the head of state detains significant political capital and popularity after the election. This has not been the case this year, however.&nbsp;</p> <script src="https://www.buzzsprout.com/299876/1516360-72-can-brazil-approve-a-tax-reform-in-2019.js?player=small" type="text/javascript" charset="utf-8"></script> <p>With regards to the tax reform, there are two (similar) existing proposals: one in the House, another in the Senate. However, it is clear that the government will have to decide which of the bills will be taken forward. The Executive promised to send its own reform proposal weeks ago, but it appears it will only deliver something by the end of this month. These delays reinforce just how complex the matter is.</p> <h2>Concerns over reforms</h2> <p>That the Bolsonaro administration has not formed a majority coalition in Congress is understandable, yet risky. Political choices have causes and consequences. Jair Bolsonaro clearly thought about it and decided to ignore the formula of political negotiations which has prevailed since the New Republic, one which involves compromises, colitions and horse-trading—which is not illegal, corrupt, or reprehensible in itself. Time will tell whether he made the right call. However, if the intention was to give more autonomy to Congress, they cannot take their eye of the need for negotiations.</p> <p>Threats to delay the pension reform show that Congress wants autonomy, but requires an open channel of communication with the government. More still, it needs promises to be fulfilled. Senators want to know what is happening with the federative pact, and when they will receive the parliamentary grants they were pledged. There is some level of independence, but it is unavoidable in Brazil&#8217;s political system that one branch of power depends on another, and vice-versa.&nbsp;</p> <p>Without wanting to sound overly pessimistic, I am highly concerned by the speed the reforms are being approved in the country. We needed an urgent liberal shock—of this, there is no doubt—but we lost our way in the details. The discussion on the pension reform arose back in the Michel Temer government, meaning it has taken about three years to actually approve it. If this occurs with the tax reform, we might see an overhaul to the system in 2023—not good enough to spark a solid recovery of our economy.&nbsp;</p> <p>If the pension reform is nearing finalization, much of this is down to the <a href="https://economia.uol.com.br/noticias/redacao/2019/09/26/reformas-nao-se-resumem-a-da-previdencia-diz-presidente-do-bc.htm">urgency</a> that was created around the issue, as well as the fact that all efforts were centered around one proposal. In the case of the tax reform, the former is in doubt, while the latter doesn&#8217;t exist. More than ever, the government must raise its game.

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OpinionOct 07, 2019

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BY Felipe Berenguer, Levante Ideias de Investimentos

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