MNI EXCLUSIVE: Brazil To Push Administrative, Regional Shakeup

     BRASILIA (MNI) - The Brazilian government is set to switch its legislative

energies to obtaining approval this year for a civil service reform and for a

"federative pact" setting out the financial relationship between federal and

local governments, after the Senate passes its key pension reform in a

second-round vote later on Tuesday, government officials and legislators told

MNI.

     But a tax reform, to simplify Brazil's confusing system of levies, will

wait until 2020, Economy Ministry officials said.

     The civil service reform backed by Economy Minister Paulo Guedes aims at

keeping employees' salaries in line with those for equivalent jobs in private

enterprise. A World Bank study released earlier this month showed that a federal

civil servant in Brazil costs almost twice as much as a private sector worker

performing a similar task.

     It is still not clear whether the legislation will touch on the politically

sensitive issue of making it easier to fire federal civil servants, many of whom

effectively enjoy jobs for life, with dismissal only possible if an extended

investigation process finds them guilty of a civil or criminal offence, such as

embezzlement or corruption. The government has considered requiring civil

servants to meet targets or face dismissal, but such a measure would be likely

to run into strong opposition in Congress, where lobbying by civil service

unions has been intense.

     The federative pact would come as a package of bills, already at different

stages in Congress, which would delineate the destinations of tax proceeds as

well as responsibilities for matters such as public safety. One bill would focus

on the distribution of proceeds from an auction of offshore oil production

rights due in early November, which is expected to bring in about $25 billion.

Another would extend the deadline for payment of awards from lawsuits against

the government by four years to 2028 and a third bill would enable the

government to securitise receivable streams of income.

     --"GOLDEN RULE"

     In addition, the government still intends to submit two proposals for

constitutional amendments: one amending the so-called "golden rule" preventing

it from issuing more debt to cover current expenses, and another to make it

easier to shift spending between different areas and to de-index wages from

inflation.

     Both of these proposals face challenges in Congress. The president of the

lower house Constitution and Justice Committee, Felipe Francischini, affiliated

with President Jair Bolsonaro's PSL party, has indicated that he does not want

to address them before lawmakers negotiate with the government. The amendment

proposals must be considered by the Committee before they can pass to the house.

     "The government has shot itself in the foot," Francischini told MNI,

decrying what he described as the government's failure to discuss its amendment

proposals with Congress.

     The lack of support for the government even among PSL members is a worrying

sign for Bolsonaro at a time when he is increasingly dependent on Congress. But,

Fernando Bezerra Coelho, Bolsonaro's Senate leader, told MNI he was confident

that the government's economic legislation would be approved this year.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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