Chamber will analyze amendments on Fundeb and FCDF

Approved by the Federal Senate last Thursday (22), the new fiscal framework will be appreciated again by the Chamber of Deputies after changes in the text promoted by the senators. In total, 15 amendments were added to the text. The proposal was approved with 57 votes in favor and 17 against.

Among the amendments provided by the rapporteur for the matter, Senator Omar Aziz (PSD-AM), the main change was the exclusion of the Executive Branch’s expenditure limit from expenditures with the Constitutional Fund of the Federal District (FCDF) and with the Maintenance Fund and Development of Basic Education (Fundeb).

Established in 2002, the DF fund is responsible for a large part of the federal capital’s budget. If there was maintenance within the fiscal framework, more than R$ 87 billion would be withdrawn from the Federal District, which could drastically affect the provision of services in the areas that are supplied by the fund, mainly in regions known as the Poverty Belt in the DF.

Senators also agreed to leave spending on science, technology and innovation out of the cap. According to the text sent by the Chamber, expenses with these areas are excluded if the revenue is own or comes from donations or other agreements within the scope of public universities, their teaching hospitals and other scientific, technological and innovation institutions.

The rapporteur also accepted a government amendment that allows the Executive to use an annual inflation estimate to expand its spending limit even in the preparation phase of the Annual Budget Law (LOA).

The original text provides that the limits to expenditure growth imposed by the framework will be corrected by the Extended National Consumer Price Index (IPCA) recorded in the 12 months up to June of the year prior to the LOA.

If there is a positive difference in the 12-month IPCA registered in that year, the government can use this difference to increase the limit. The use of this additional credit needs to be approved by the National Congress.

In a practical sense, the amendment presented by the government allows it to estimate this difference and apply it in the elaboration of the LOA project. According to government leader, senator Randolfe Rodrigues, the measure only serves to adjust next year’s LOA, which will already comply with the framework.

“The calculation of the IPCA that was made in the Chamber took into account the month of August of last year, in which there was an artificial deflation due to the reduction of taxes on fuels. This will create the need for a cut of up to R$40 billion in next year’s federal budget. With this amendment, we do not change the calculation established by the Chamber. The objective is simply to avoid this cut, allowing the amount of this expense to be included in the PLOA for next year as a conditional expense”, he said during a vote in the Senate.

There is still no date for voting in the Chamber, but according to the President of the House, Arthur Lira (PP-AL), the proposal should be voted on in July.

Privatization and modernization

The project sent to the House by the Senate also provides that the resources obtained from the sale of assets and privatizations can be used by the government to balance the Union’s debts.

Senators also approved another amendment that creates the Fiscal Modernization Committee to improve the governance of federal finances. This committee will not have a deliberative nature and will be composed of a representative of each of the following bodies: Ministry of Finance, Ministry of Planning and Budget, Chamber of Deputies, Federal Senate and Federal Audit Court (TCU). They should meet once a year to approve the work plan and activity report.

Main points of the Framework

Despite the amendments presented by the senators, the project maintained its original meaning, as the percentage of expenditure growth according to the increase in primary revenue of two years before. As a result, expenses can grow up to the following limits:

• 70% of the actual revenue variation, if the target for the year prior to the preparation of the annual budget law has been met; or
• 50% of the actual revenue variation, if the target for the year prior to the preparation of the annual budget law has not been achieved.

The proposal provides for tolerance ranges for defining the primary result. This margin, plus or minus, is 0.25 percentage points of GDP provided for in the Budget Guidelines Law (LDO) project. The goal is only considered unfulfilled if the result is below the lower band of the tolerance range.

The text also ensures a minimum growth for the primary expenditure limit: 0.6% per year. The maximum limit will be 2.5%, even if the application of 70% of the revenue variation results in a higher amount.