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How Brazilian lawmakers won extra powers to waste money

Congress’s capture of the budget is making Brazil less governable

Photograph: Reuters

Photograph: Reuters

President luiz inácio lula da silva is exasperated. “In no other country in the world has Congress kidnapped part of the budget” as has happened in Brazil, he fumed in August. He has a point. In the past decade Brazil’s Congress has become one of the most powerful in the world by giving itself ever greater control of the country’s federal budget. The Supreme Court and Lula, as the president is universally known, are trying to curb legislators’ extravaganza of pork-barrel spending, which fosters corruption and imperils the country’s fiscal targets. In response, Congress is threatening a power grab.

At stake are billions of reais of federal spending. Since Brazil’s constitution was adopted in 1988, Congress has had the power to participate in the drafting of the annual budget. Most of the money is taken up by mandatory spending on things such as public salaries and pensions. The remaining 11%, which represented 226bn reais ($41bn) last year, is discretionary. Lawmakers are allowed to present amendments to discretionary spending for projects in their constituencies such as new roads or schools. Today such “earmarks” make up 24% of discretionary spending, up from less than 2% in 2015.

These powers are an anomaly. Among the 38 countries of the oecd, a club of mostly rich countries, 20 do not allow their legislatures to co-draft the budget, according to Marcos Mendes of Insper, a university in São Paulo. In those that do, earmarks generally do not account for more than 1% of discretionary spending. The United States, which caps them at 1%, has strict rules against legislators or their families benefiting financially from them.

The purpose of earmarks was partly to make governing easier. In Brazil’s most recent election, in 2022, 23 parties won seats in Congress. Presidents used to have the power to decide which earmarks to approve, and would use them to reward allies who helped them pass laws.

But offers of pork shrank in the 2010s, thanks to a string of presidents who had poor relations with Congress and a crippling recession. In 2015 Congress amended the constitution to force the president to allocate at least 1.2% of the government’s annual net revenues to earmarks. In 2019 the then-president Jair Bolsonaro let lawmakers run amok to win their protection as impeachment motions piled up against him. Legislators made it obligatory for the government to allocate an additional 2% of its annual net revenues for “collective earmarks”, which are proposed by congressional committees or caucuses.

When Congress began to give itself increasingly obscure budget powers, the Supreme Court struck them down. But legislators have found creative fixes. In 2019 they established a new type of grant, colloquially named Pix amendments after a popular instant-payments system. These allow deputies to send money to their constituencies without specifying what the funds will be used for. Beatriz Rey of popvox Foundation, a think-tank in the United States, calls them “a blank cheque for corruption”.

According to Transparency International, a watchdog, of the 8bn reais that were approved in Pix grants last year, less than 1% included information about the projects they would fund. The destination of some earmarks may be dodgy. In March Chiquinho Brazão, a legislator from Rio de Janeiro, was arrested as part of investigations into the murder of a political rival in 2018. During their enquiries federal police found evidence suggesting that Mr Brazão and a clique of allies had diverted millions of reais in earmarks via a charity. Federal police have requested a probe be opened. (Mr Brazão denies any wrongdoing.)

All this is altering the balance of power. Since the president has lost the ability to approve earmarks, the costs of being in the opposition have declined. Congress is becoming bolshier and increasingly challenging presidential vetoes. Earlier this month legislators forced through a law—that Lula had vetoed—to further defer the introduction of payroll taxes for a raft of industries. Such moves will make it harder for the government to control spending, just as investors fret about Brazil’s debt and deficits.

On August 16th Brazil’s Supreme Court suspended Pix grants, citing the lack of transparency, and called a meeting between Congress and the executive. The two sides agreed that the executive should be obliged to set aside an unspecified amount of money to fund Pix grants, but that these should “respect criteria of transparency and traceability”. The details have yet to be hashed out.

Congress was infuriated by the Supreme Court’s decision. The day after the court’s ruling, the speaker of the lower house, Arthur Lira, proposed a bill that would amend the constitution to allow Congress to overturn some decisions made by the court. Due to term limits, Mr Lira cannot be re-elected as house speaker in a vote next February. Early indications suggest that his successor could be a machine politician just as keen to protect Congress’s new powers. Lula’s job is not about to get any easier. 

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Author: Editors Desk

Source: The Economist

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