See below extracts of the interview by Government Relations Consultant Gabriel Petrus to Monitor Global Outlook on President Rousseff’s attempt to reach an agreement with the Brazilian National Congress:
Brazil president, congress in agreement on tax Reform
SIGNIFICANCE: The election of President Dilma Rousseff’s political nemesis to lead Brazil’s lower house of Congress will not bring government to a standstill. Both leaders support tax and fiscal reforms to streamline business operations and prevent a sovereign credit downgrade.
Despite animosity between Brazilian President Rousseff and the newly elected president of Congress, much-needed fiscal and tax reforms are expected to have support from both branches of government.
Congressman Eduardo Cunha, who was elected Feb. 1 as speaker of the Chamber of Deputies, has made news headlines for attacking Ms. Rousseff’s hold on power by proposing a congressional investigation into the Petrobras scandal (http://www.monitorglobaloutlook.com/Briefings/2015/02/Petrobras-investors-eye-May-30-audit-deadline) and an amendment to prevent the president from cutting congressional earmarks. Yet Mr. Cunha is still expected to support the president’s cabinet’s economic measures, which was underscored Feb. 18 when he and his Senate counterpart appointed a legislator to spearhead reforms aimed at improving the nation’s business environment.
“There are many ways that Cunha will oppose Dilma, but there is much room for collaboration,” says Gabriel Petrus, a political consultant at Brasilia-based Barral M Jorge & Associates and a former advisor to Ms. Rousseff’s chief of staff. “The shift of power to the legislative branch is what he wants. Having more power doesn’t mean he wants to destabilize government, but to affirm his political plans.”
Cunha has publicly said he will not oppose Finance Minister Joaquim Levy’s belt-tightening measures intended to prevent Brazil from losing its investment-grade credit rating. Mr. Levy, in his first two months in office, has already raised taxes, reduced worker benefits, and cut subsidies; further moves this year are expected to include reduced financing for the state-owned banks Caixa Economica Federal and the Brazilian National Development Bank (BNDES) as well as tax reforms.
“Cunha won’t oppose the financial stabilization of Brazil,” Mr. Petrus tells MGO in a telephone interview from Brasilia, adding: “Everybody wants tax reform.”
MGO reported in October (http://www.monitorglobaloutlook.com/Briefings/2014/10/Brazil-s-former-topbanker-anticipates-tax-overhaul) that tax reform would likely be on the agenda for this year, regardless of who was elected president on Oct. 26. The World Bank’s 2015 Doing Business (http://www.doingbusiness.org/~/media/giawb/doing%20business/documents/profiles/country/BRA.pdf) index ranks Brazil 177th out of 189 countries in terms of its tax burden. It takes businesses in Brazil 2,600 hours each year to prepare and file tax returns, compared to 261 hours in China and 334 in Mexico.
Tax reform: merging PIS and COFINs and simplifying ICMS
Mr. Levy’s Finance Ministry is currently writing a bill that would unify the PIS (Programa de Integração Social) and COFINS (Contribuição para o Financiamento da Seguraridade Social) taxes. The bill is expected to be sent to Congress within the next few months and will require passage in both the House and Senate.
Mr. Levy is also formulating a project of resolution (projeto de resolução n .1/2013 (http://www.senado.gov.br/atividade/materia/detalhes.asp?p_cod_mate=110426)) that would set the ICMS (Imposto Sobre Operações Relativas à Circulação de Mercadorias e Serviços de Transporte Interestadual de Intermunicipal e de Comunicações) to a uniform rate of 4 percent across all states. This project has already been approved by the Committee of Economic Affairs of the Senate (Comissão de Assuntos Econômicos) and must now be voted on by the floor of the Senate. However, Cunha has vocally opposed this change unless it comes with the creation of two funds to compensate states that will lose revenues from the measure.
Serious disagreement between Rousseff and Cunha largely outside fiscal policy
Unsurprisingly, Cunha and Rousseff do disagree on many points, including campaign finance and election reform. Cunha wants legislators to be elected purely by majority vote, whereas Rousseff supports the current system where a top vote-getter can donate “extra” votes to other candidates and pull them into Congress. Cunha wants to end the immediate reelection of the president, governors, and mayors and to allow campaign donations from businesses and individuals, whereas Rousseff prefers public campaign finance exclusively and favors allowing immediate reelections. Cunha also would like to increase the mandatory retirement age of supreme court judges by five years to 75, which could deprive Rousseff of the opportunity to appoint any new supreme court judges in her second term.
A social conservative, Cunha is also at odds with Rousseff on homosexual rights. Rousseff has been a supporter of more liberal policies such as promoting anti-homophobia education in Brazilian schools, while Cunha has proposed legislative bills for establishing a national day of heterosexual pride, criminalizing discrimination against heterosexuals, and prohibiting adoption by gay couples.
There will no doubt be clashes as Cunha attempts to shift power to Congress. But Petrus expects the situation to soon calm as both sides find their roles. He believes that Rousseff will most likely accept the need to become a better negotiator with Cunha, who has long been a thorn in her side.
“Cunha was already seen as a threat to the presidential palace years ago, but Rousseff didn’t want to negotiate with him,” says Petrus. “If they did negotiate in the past, the political chain would not be suffering so much now.”