Brazil unveils reform package to tackle fiscal deficit

Brazil’s Economy Minister Paulo Guedes unveiled a bundle of wide-ranging reforms on Tuesday, aimed at cutting spending and changing budget rules in a drive to reduce the government’s chronic fiscal deficit.

President Jair Bolsonaro accompanied Guedes to the Senate to submit constitutional amendments that will, if passed, decentralise budget resources, ease non-discretionary spending rules and free up funds to pay down public debt and boost investment in a sluggish economy.

One proposal that will not be popular in Brasilia seeks to end job stability for new civil servants in order to cut the public sector payroll that weighs heavily on the budget.

Bolsonaro said he would push for approval of that amendment, which would enable the government to cut public sector employee salaries, hours and benefits.

The right-wing president and his economy minister hope the proposals will be approved by next year, building on the momentum from a landmark pension reform that was passed by Congress in September.

“We are sure that, in a short time, perhaps early next year, mid-next year at most, this will become a reality and it will benefit us all,” Bolsonaro said in remarks in Congress that were broadcast on local television.

Lawmakers, however, say none of the major reforms Bolsonaro’s government has proposed will pass this year. There is a tight window in 2020 to pass laws before campaigning starts for local elections in October.

Raising taxes to resolve the fiscal crisis is out of the question because Brazil already has one of the highest tax burdens in the world, Treasury Secretary Mansueto Almeida said.

Pensions and payroll were so costly that the government’s non-discretionary spending has reached 95% of the budget, he said, increasing a public debt that is close to 80 percent of gross domestic product.

Guedes said the administrative reform was a priority to start reducing spending and he hoped it would be approved before the end of the year with the help of lawmakers.

With interest rates at a relatively low level and the government’s commitment to respecting a federal spending cap, he said Brazil could eventually return to having a primary budget surplus.

The decentralization of spending, the administrative reform and, eventually, an overhaul of Brazil’s tax system would be nothing less than a “transformation of the Brazilian state,” Guedes said.

“Congress wants to rewrite the history of the Brazilian state machine. We have a wonderful agenda of work ahead for the next six months or one year,” he said.

Meanwhile, Brazil’s carbon emissions have remained stable despite an increase in deforestation because they were offset by a larger use of clean energy sources such as ethanol and wind power, a report said on Tuesday.

Brazilian emissions of gases blamed for global warming reached 1.939 billion tonnes of carbon dioxide equivalent (CO2e) in 2018, 0.3% more than seen in 2017, according to SEEG, the most comprehensive study on the topic in the country.

Emissions from the energy sector fell 5% last year when compared to the previous year to 407 million tonnes of CO2e as renewable power continues to increase its share in the energy mix.

In contrast, emissions from the destruction of forests rose 3.6% to 845 million tonnes of CO2e, leading that source to increase its share in total Brazilian emissions to 44%, more than the combined participation of the industrial and energy sectors.

Clean energy contribution, however, is unlikely to avoid a larger carbon dioxide increase for 2019, as deforestation sharply increased this year to the highest level in a decade. And while emissions were stable, there is no compensation for the losses to wildlife as hundreds of species are extinguished as fires rage.

The data places Brazil as number 7 in the ranking of the world’s largest emitters of heat-trapping gases, which is led by China followed by the United States and the European Union.

“Brazil should be in a much better position. Its energy matrix is getting even cleaner than it was. If it stopped deforestation, its emissions would be a third of that,” said Tasso Azevedo, the study’s coordinator.

“There will be a significant increase,” said Ane Alencar, science director at Ipam, the organization collaborating with data on land use changes for the SEEG study.

Deforestation leads to some curious findings. Unlikely other countries where states with higher concentration of industries lead emissions numbers, in Brazil that ranking is led by Pará and Mato Grosso states, for example, countries partly located in the Amazon, with industrialized Sao Paulo state in a distant fourth place.

Livestock activity contributed to those states’ increase in emissions numbers, besides deforestation.

“There is a large difference in the origin of emissions in Brazil when compared to most countries,” said Ricardo Abramovay, an economist at the University of Sao Paulo.

“While in countries such as United States and Japan a change to a society with less emissions will require large investments to modify production models and consumption habits, in Brazil we only need to cut deforestation, a very small investment,” he said.

Brazil mining regulator ANM on Tuesday criticised iron ore miner Vale for failing to disclose problems with its Brumadinho tailings dam before its deadly collapse in January, saying better information could have allowed it to demand emergency measures.

The dam collapse flooded a nearby company canteen and the surrounding countryside with mining waste and killing more than 250 people. It was Vale’s second fatal mining accident in less than four years.

The regulator said it started finding red flags soon after the dam collapse. Technicians visited the mine and found that some important data in Vale’s internal inspection system did not match the data previously inserted in the regulator’s risk management system.

It added that based on the report’s findings, the ANM will now assess the iron ore miner with 24 new fines, adding that it will forward the report to prosecutors and other investigative organs probing Vale’s conduct related to the dam burst.

Reuters