Expense being meritorious does not justify taking it out of the framework, says consultancy of the Chamber – 05/19/2023 – Market

Amid the reaction of several sectors against the inclusion of expenses in the limit of the new fiscal framework, the consultancy of the Chamber of Deputies released a technical note listing the criteria that led the rapporteur, deputy Cláudio Cajado (PP-BA), to make this decision .

Among the targets of controversy are the Union’s complement to Fundeb (Fund for the Maintenance and Development of Basic Education), transfers to pay for the nursing floor and contributions to non-dependent state companies (which manage to pay for operating expenses with their own resources).

The original proposal designed by the Ministry of Finance left these expenses outside the limit established by the new framework —in some of these cases, the logic repeats the spending ceiling, which also provided for these expenses as exceptions to the fiscal rule.

The framework rapporteur, however, decided to place these items under the new rules, with the justification that they are primary expenditures that affect the public debt. The Chamber’s consultants assisted the deputy in formulating his opinion.

“The fact that an expense is relevant or meritorious should not be a criterion for excluding the limit”, says the technical note, signed by legislative and budget consultants of the Chamber. “So much so that all expenses with health and education, for example, mandatory or discretionary, are subject to the ceiling [de gastos].”

If, on the one hand, the inclusion of expenses contributes to expanding the starting point of the framework, on the other hand, there is a risk that the accelerated growth of these expenses will take up space currently occupied by other policies.

Groups linked to the areas affected by the changes assess that the eventual compression of expenses under the new limit may inhibit initiatives aimed at expanding policies related to Fundeb or the nursing floor. As revealed to Sheetthe military has also been pressing to exclude expenditures linked to the Armed Forces.

Staying outside the framework would not only maintain the current status, since these items are far from reaching the spending ceiling, but would also give the government greater flexibility when it comes to analyzing requests for increased resources for these areas in the future.

The note says, however, that the framework’s rapporteur outlined “objective criteria” to decide which of the 13 exceptions listed by the government would be maintained in the text.

The four parameters are: expenditure arising from revenue sharing with states and municipalities; “neutral” expenditure from a fiscal point of view (there is a specific income, such as a donation or agreement, which only exists because it is intended for a pre-defined expenditure); unpredictable, urgent and relevant expenses authorized by extraordinary credit; and seasonal costs of holding elections.

“With regard to the Union’s supplement to Fundeb and the nursing floor, such expenses, although of a mandatory and relevant nature, in addition to being provided for in the Constitution, are part of the Union’s Budget and have a primary impact like any other, so much so that their growth contributed for unfavorable fiscal results”, says the document.

“[Elas] They must therefore be subject to the set of fiscal rules (inclusion in the Budget, primary result, golden rule, ceiling rule), with no grounds for their exclusion being seen”, he adds.

In the specific case of Fundeb, the technical note states that the fiscal framework does not change the rules for the supplement paid by the Union. This means that the percentage will continue to rise to 23% of the fund’s total resources until 2026, as approved in constitutional amendment 108/2020, and will remain at this level thereafter.

“The inclusion of expenses with Fundeb in the expenditure ceiling [do arcabouço fiscal] does not bring any reflection on the expenditure growth parameters, since the Constitution itself established such goals”, says the consultancy.

Cajado’s opinion provides for a transition rule to accommodate the growth of these transfers, which today are at 17% of the fund. One of the devices of the proposal says that the spending limit will have an increase in the amount equivalent to the increase in the complementation in the fiscal year.

Each year, the percentage rises by 2 points, until it reaches 23%. In recent years, with the increase in transfers, Fundeb supplementation went from an average of R$ 17.9 billion paid per year between 2015 and 2020 to R$ 32.9 billion last year.

After the transition in the percentage paid by the Union to Fundeb, there will no longer be any extra gain in the framework limit to accommodate the expansion of this expense, which may occur at a faster pace than the increase in the new ceiling. Therefore, economists recognize that this tends to be a pressure factor on the rule, alongside other policies, such as the appreciation of the minimum wage and the minimum health and education (which are once again linked to the increase in revenues).

In the case of the nursing floor, the rapporteur states that expenses with other careers in the public service are accounted for within the current ceiling and will remain so in the new framework.

“Excluding expenses with the nursing floor from the ceiling creates an asymmetry between the servants of the other entities with the expenses destined to the Union’s servants. These, in addition to being included in the ceiling, are subject to any triggers in case of non-compliance with the goal “, says the technical note.

The consultancy also defended the inclusion of transfers to the FCDF (Constitutional Fund of the Federal District), supplied by the Union with resources from taxes paid by the entire population. The fund’s money finances DF spending on public security and other policies, on the grounds that the district government must take care of the space occupied by the federal administration.

The technicians’ argument is that the transfers to the FCDF are not revenue sharing —like the division of taxes through the FPE (State Participation Fund) and the FPM (Municipal Participation Fund). It is a federal fund, whose expenses are accounted for in the Federal Budget.

The consultancy also points out that the expenses of the Court of Justice and the Public Ministry of the DF are under the ceilings of the Judiciary and the MP, which would make it meaningless to exclude FCDF expenses.

The DF fund, in turn, will have its correction rule modified, if Cajado’s opinion is approved. Today, the value is corrected by the annual variation of the RCL (net current revenue), that is, the more the Union collects, the greater the transfers to the Federal District.

Under this rule, the amount grew from BRL 18.2 billion in 2011 to a forecast of BRL 23.6 billion this year —in figures already updated by inflation.

The rapporteur’s proposal is that the growth of transfers to the FCDF follow the percentage of correction of the general spending limit (0.6% to 2.5% per year).

Here’s the list of exceptions to the spending limit:

1. Constitutional transfers to states and municipalities by way of tax distribution

2. Extraordinary credits, released in unpredictable and urgent cases (such as those resulting from war, internal commotion or public calamity)

3. Expenses funded with funds from donations or judicial or extrajudicial agreements signed due to disasters

4. Expenses of universities and federal institutions, and public companies of the Union providing services to federal university hospitals, when funded with own income, donations or agreements

5. Expenses incurred with funds arising from transfers from other entities of the Federation to the Union intended for the direct execution of works and engineering services

6. Expenses with precatories agreements to be paid with discount

7. Account matching operations with precatories

8. Non-recurring expenses of the Electoral Court with holding elections

9. Legal transfers to states and municipalities of resources obtained from forestry concessions