Brazil’s Chamber and Senate presidents and Economy Minister sign pact to pass Income Tax reform

RIO DE JANEIRO, BRAZIL – In an attempt to resolve their differences, the leaders of the Senate and the Chamber and the Minister of Economy agreed to an alliance to advance the economic agendas now stymied in Congress.

Pacheco pledged to press ahead with voting on the income tax reform in the Senate, for which Senator Angelo Coronel (PSD-BA) has been nominated as rapporteur. The rapporteur is not fully aligned with the government, as Guedes and Lira would like, but neither can he be seen as opposition.

Coronel should meet with Guedes next week to outline changes that he should introduce to the income tax reform.

In return for Pacheco’s support, Lira will place the vote on the tax reform of the new Refis – or tax amnesty bill – in the Chamber. Federal deputy Newton Cardoso Júnior (MDB-MG) should be responsible for the substitute text.

The negotiations were disclosed by Esfera, an organization that promotes dialogue between public and private institutions.

COURT-ORDERED FEDERAL DEBTS

The agreement was sealed after a meeting seeking a solution to the impasse over court-ordered debts. In 2022, the federal government’s debts recognized as due and payable in final court orders will reach R$89.1 (US$17) billion.

The draft bill to be submitted to senators and legislators guarantees a partial payment of R$39.8 billion in 2022. The cut was calculated based on the court-ordered debt security payments made in 2016, the year the spending cap was established, and duly updated. Priority will be given to payment of lesser-value debts.

The proposal will also provide options for the scheduled payment of the remainder of almost R$50 billion. “There would be alternatives included in the PEC (proposed constitutional amendment), which would consist of the options of settling accounts, offsets, payment with assets, negotiation between parties,” Pacheco said.

Should it be impossible to settle all 2022 court-ordered debts through these means, the remaining debts will be transferred to 2023. “If this negotiation is not possible based on this list of situations, the balance will be transferred to 2023, while respecting the spending cap,” Pacheco said.

The priority during discussions was to reach a proposal that would balance three points: compliance with the spending cap, commitment to the payment of court-ordered debts, and the possibility of making room in the federal budget to expand the “Bolsa Família” (Family Grant) program.

To simplify the process, the new solution will be incorporated into the Court-ordered debt PEC, which has been approved by the Chamber’s Constitution and Justice Committee (CCJ) last week. The PEC foresees the payment in installments of part of the debts in up to 10 years, but the content will be changed in the special committee, which reviews the proposal.

The solution announced by Pacheco and Lira will also be presented to party leaders. “We will try, based on all assumptions reported here, to shorten the PEC’s processing time as soon as possible, provided there is an agreement,” Lira said. He pledged to create a special committee on the Court-ordered debt PEC this Tuesday.

The Minister of Economy said he is “very confident” in Congress and the Federal Supreme Court (STF), in the understanding that it will be possible to maintain what he called a “double commitment:” to social and fiscal responsibility.

“Bolsa Família needs to be bolstered. On the other hand, at all times with fiscal responsibility, which is a commitment to future generations. This difficult balance is the art of politics, to make these choices, and I think we are making very good progress,” Guedes said.

For the full picture, see our Brazil Tax Reform: Complete Guide.

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