Rousseff Pitches Renewed Austerity to Wary Brazil Congress

  • Measures include caps on spending growth and cuts in pensions
  • Legislators booed president when she proposed banking tax

Brazil’s President Dilma Rousseff urged legislators to approve caps on government spending growth, cuts in pension benefits and the revival of a financial transaction tax to shrink the growing budget deficit and boost investor confidence.

"Brazil requires the contribution of Congress to continue with fiscal stabilization and assure the recovery of growth," Rousseff, 68, said Tuesday in a speech to commemorate the beginning of the legislative year. Unlike last year, when she sent her chief of staff, the president personally delivered the message.

Congress’s divisions were on full display during the event, as supporters shook hands with the president and slapped her on the back as she made her way to the main stage for the speech. Others booed when she proposed the temporary revival of the financial transaction tax known as CPMF, and some waved signs expressing their opposition to the plan.

The president will need to bridge the divide to overcome some of her biggest challenges this year, which include a deepening recession and a push to impeach her. While efforts to oust the president lost momentum during Congress’s end-of-the-year recess, she is likely to confront stiff opposition to her measures that are designed to shore up fiscal accounts.

‘Congress’s Help’

Rousseff said she would discuss with society ideas to curtail pension payments, and push for more flexible fiscal targets that would take into account a sudden shortfall of revenue, for example. Congress sets those targets every year, stipulating that the government must post a specific budget surplus before interest payments. Lawmakers had to lower the so-called primary budget goal in 2015, as the recession curtailed tax income.

The government’s approval rating tumbled to near-record lows last year as its fiscal austerity programs limited some social programs and exacerbated an economic downturn, while an increase of government-controlled prices fueled inflation. Many lawmakers are reluctant to approve further belt tightening in 2016, when economists expect the recession to deepen.

"If voting took place today, it would be hard to win approval" of the CPMF tax, Senator Humberto Costa, a member of the ruling Workers’ Party, said Tuesday. "But who knows? We’re going to debate this matter as the year progresses."

Senate Proposals

Senate President Renan Calheiros proposed an alternative path toward growth after Rousseff spoke, saying that reducing the state’s role in the economy may be the best way to boost investor confidence. Calheiros is a member of the PMDB party, which is part of the ruling coalition but doesn’t always support the Rousseff administration’s policies.

He said he would open voting on proposals to grant the central bank formal independence from the government. The decision comes after policy makers balked at a rate hike last month, raising questions among traders whether it was giving into political pressure to protect the economy rather than control inflation.

Calheiros also will hold votes on legislation that would relieve state oil company Petrobras of its obligation to operate new fields in the so-called pre-salt offshore area.

"We can attract new investors and free the company to be more selective in its investments," he said.

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