Bloomberg — Brazil Finance Minister Fernando Haddad has continued his public push for revenue-increasing measures that will help balance the country’s budget in 2024. Privately, however, his team is starting to acknowledge that he may break his promises and run a deficit next year.
Haddad, whose policy approach has helped soothe investor fears about leftist President Luiz Inacio Lula da Silva’s spending plans, needs $40 billion in revenue increases in order to turn an expected deficit of $29.1 billion this year into a balanced result in 2024. He has sought to implement a series of measures, including taxes on offshore companies, closed-end funds and dividends, in order to deliver on his pledge.
But those proposals require congressional approval, and lawmakers — including lower house Speaker Arthur Lira — have shown little willingness to move them forward. With a deadline fast approaching, the Finance Ministry has realized that it is running low on time, according to two people with knowledge of the situation, who were granted anonymity to discuss internal matters.
Haddad last Friday expressed public frustration with congress and Lira, who has told the minister he is unwilling to put the offshore taxation measure to a vote.
During an interview with the journalist Reinaldo Azevedo, Haddad criticized the amount of public funds given to lawmakers for projects in their home states as part of the federal budget, and said that while the lower house is powerful, it should not use its authorities “to humiliate the Senate and the federal government.”
The comments led Lira to postpone meetings with party leaders to discuss a vote on Brazil’s new fiscal framework, a proposal to shore up the country’s finances that needs the lower house’s approval by the end of August, when the government will present its 2024 budget bill.
Lira is also one of the leaders of a group of centrist parties that is negotiating with Lula over cabinet positions to secure their support in the legislature, where the bloc wields significant influence.
Haddad spent this week trying to smooth things over with Lira and the lower house, and a meeting to discuss the vote on the fiscal plan is now expected to take place Monday evening. His economic team is hopeful an agreement between Lula and Lira can pave the way for the fiscal bill’s passage in time to align the budget plan with new spending rules.
But Lula is also a potential obstacle to the zero-deficit plan, according to people with knowledge of the matter.
Brazil’s budget guidelines bill was sent to congress with a zero deficit estimated for 2024. That could help Haddad pressure lawmakers to approve new taxes. If that fails, the economic team could eventually ask lawmakers to change the fiscal target and allow it to run a deficit.
But if congress doesn’t agree, Haddad would have to freeze spending, potentially limiting public investment and social expenditures to comply with the fiscal goal.
That, the people said, could cause Lula to see the new fiscal rule as a problem, leading him to criticize a plan Haddad has worked to build support for among both politicians and investors. A negative fiscal target, by contrast, would allow more of the spending Lula wants, likely limiting friction between the president and his minister, according to the people familiar.
Haddad has already heard from investors — a majority of whom approved of his work in a recent poll — that failing to balance the budget in 2024 won’t be the end of the world. But they don’t want the framework to lose credibility as a guide for Brazil’s fiscal future.
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