President Jair Bolsonaro ordered that families included in a new cash-transfer program have a support of at least R$400, Economy Minister Paulo Guedes said in an event of the real estate development industry. To make the extra spending possible, the minister plans to ask for a “waiver” of R$30 billion or bring forward the revision of the spending cap, scheduled for 2026.
The waiver would be like asking to leave R$30 billion outside the spending cap to spend on the transitional part of the benefit. It would be, Mr. Guedes explained, an “authorization to spend this temporary layer of protection for the most fragile” to “mitigate the socioeconomic impact of the pandemic,” he added, without elaborating.
Another possibility, he said, would be to match expenses adjusted by an inflation index with the spending cap, which is adjusted by another index. He did not elaborate on that either, but said that with this there would be an “expansion” of available funds. “It would be like bringing forward the 2026 spending cap review,” he said.
The spending cap is adjusted by the Extended Consumer Price Index (IPCA), which amounts to 10.25% in the 12 months to September. A large set of expenses, including social security, continuous cash benefit (BPC, a pension for poor elders and disabled people), salary allowance and unemployment insurance, are adjusted by the National Consumer Price Index (INPC), which stands at 10.78% in the 12 months to September.
Mr. Guedes said the government wants to be “reformist and popular, not populist.” In addition, the minister said he is still studying the final model for the cash-transfer program Auxílio Brasil to pay on average R$400 for 17 million families. Bolsa Família, the social program in place now, includes 14 million families. “Whatever the solution is, it is a political decision.”
According to Mr. Guedes, the R$400 benefit will be temporary because senators have not passed the Income Tax overhaul bill, which would give a permanent source for the social program.
“Without the Income Tax [overhaul], we have no source to create a permanent program,” he said. “So we have to create a transitional one.” This would last until December 2022, an election year, and President Bolsonaro will run for reelection.
The minister explained that there was an equation involving a constitutional amendment proposal (PEC) to make room under the spending cap for the new program, while the income tax overhaul proposed by the economic team would generate a source of funds. As the Income Tax bill did not pass in the Senate, the government had to “take action,” Mr. Guedes said. “The government decided to create what would be – technically it is not that yet – a basic family income program.” He said it is a “prototype” of what a basic family income program would be, with a permanent part and a transitional part, until a funding source is found.
However, the whole plan envisaged a “sustainable” benefit of R$300. According to the minister, the government ended up “making a larger number to compensate for price increases.” The minister said the pandemic has aggravated important social imbalances. “We are aware of this and therefore creating programs that mitigate the problem.” He commented that 50% of world inflation today is in food and energy, and that the impact hits the most vulnerable.
Mr. Guedes’s remarks after the regular close of markets set off a substantial worsening movement in domestic assets late Wednesday. The remarks, however, only affected those that were traded in the extended session, but should be reflected in a pressured opening on Thursday.
“His remarks were very bad,” said the strategist of a brokerage firm, who asked not to be named. “He apologized for the higher spending and even said they could bring forward the spending cap review.”
(Marcelo Osakabe, Felipe Saturnino, Victor Rezende and Matheus Prado contributed to this story.)
President Jair Bolsonaro ordered that families included in a new cash-transfer program have a support of at least R$400, Economy Minister Paulo Guedes said in an event of the real estate development industry. To make the extra spending possible, the minister plans to ask for a “waiver” of R$30 billion or bring forward the revision of the spending cap, scheduled for 2026.
The waiver would be like asking to leave R$30 billion outside the spending cap to spend on the transitional part of the benefit. It would be, Mr. Guedes explained, an “authorization to spend this temporary layer of protection for the most fragile” to “mitigate the socioeconomic impact of the pandemic,” he added, without elaborating.
Another possibility, he said, would be to match expenses adjusted by an inflation index with the spending cap, which is adjusted by another index. He did not elaborate on that either, but said that with this there would be an “expansion” of available funds. “It would be like bringing forward the 2026 spending cap review,” he said.
The spending cap is adjusted by the Extended Consumer Price Index (IPCA), which amounts to 10.25% in the 12 months to September. A large set of expenses, including social security, continuous cash benefit (BPC, a pension for poor elders and disabled people), salary allowance and unemployment insurance, are adjusted by the National Consumer Price Index (INPC), which stands at 10.78% in the 12 months to September.
Mr. Guedes said the government wants to be “reformist and popular, not populist.” In addition, the minister said he is still studying the final model for the cash-transfer program Auxílio Brasil to pay on average R$400 for 17 million families. Bolsa Família, the social program in place now, includes 14 million families. “Whatever the solution is, it is a political decision.”
According to Mr. Guedes, the R$400 benefit will be temporary because senators have not passed the Income Tax overhaul bill, which would give a permanent source for the social program.
“Without the Income Tax [overhaul], we have no source to create a permanent program,” he said. “So we have to create a transitional one.” This would last until December 2022, an election year, and President Bolsonaro will run for reelection.
The minister explained that there was an equation involving a constitutional amendment proposal (PEC) to make room under the spending cap for the new program, while the income tax overhaul proposed by the economic team would generate a source of funds. As the Income Tax bill did not pass in the Senate, the government had to “take action,” Mr. Guedes said. “The government decided to create what would be – technically it is not that yet – a basic family income program.” He said it is a “prototype” of what a basic family income program would be, with a permanent part and a transitional part, until a funding source is found.
However, the whole plan envisaged a “sustainable” benefit of R$300. According to the minister, the government ended up “making a larger number to compensate for price increases.” The minister said the pandemic has aggravated important social imbalances. “We are aware of this and therefore creating programs that mitigate the problem.” He commented that 50% of world inflation today is in food and energy, and that the impact hits the most vulnerable.
Mr. Guedes’s remarks after the regular close of markets set off a substantial worsening movement in domestic assets late Wednesday. The remarks, however, only affected those that were traded in the extended session, but should be reflected in a pressured opening on Thursday.
“His remarks were very bad,” said the strategist of a brokerage firm, who asked not to be named. “He apologized for the higher spending and even said they could bring forward the spending cap review.”
(Marcelo Osakabe, Felipe Saturnino, Victor Rezende and Matheus Prado contributed to this story.)
Source: Valor international