Framework: Fundeb must be released from lock – 06/19/2023 – Market

The rapporteur for the fiscal framework in the Senate, Omar Aziz (PSD-MA), plans to hit the hammer and remove Fundeb (Fund for Maintenance and Development of Basic Education) from the spending limit of the new rule. On the other hand, another change considered by him has yet to be decided — that of changing the inflation period used to determine what the level of expenses will be, which may result in the release of more resources for 2024.

Aziz will meet this Tuesday (20) with the rapporteur for the text in the Chamber, deputy Cláudio Cajado (PP-BA), to align the changes.

Last week, the senator signaled that he was willing to adjust the text to avoid a budget cut in the 2024 Budget proposal – estimated by the government at up to R$ 40 billion. On the eve of the vote in the Senate, Aziz told people close to him that this point still faces resistance in the Chamber of Deputies, and that he intends to avoid a new tug of war between the two Houses.

Plan A of the rapporteur and the Lula government (PT) is to approve the fiscal framework in the CAE (Economic Affairs Commission) of the Senate this Tuesday. The chairman of the committee, senator Vanderlan Cardoso (PSD-GO), already takes it for granted, however, that there will be a request for a view, which could delay the vote by one day.

The expectation in the House is to approve the text in plenary on Wednesday (21), when it is also expected to vote on the nomination of lawyer Cristiano Zanin for the STF (Federal Supreme Court).

Aziz has been negotiating the report with Cajado because, with the changes, the text will go back to the Chamber of Deputies. Even with an agreement, the vote could be postponed to July. In addition to the June festivities —which mobilize parliamentarians, especially from the Northeast region—, the President of the House, Arthur Lira (PP-AL), will be in Portugal next week.

Aziz also intends to give in to protests from the Federal District bench and leave transfers to the FCDF (Constitutional Fund of the Federal District) outside the new ceiling. The fund, maintained with Union resources, is sent to the Federal District for expenses of the federal capital with public security and other policies.

The leader of the PSDB, Senator Izalci Lucas (DF), claims that there was an agreement with Aziz, Lira and the President of the Senate, Rodrigo Pacheco (PSD-MG), to remove the FCDF from the scope of the rules under discussion.

“The important thing now is to vote quickly. We will have a hearing tomorrow [terça] and it must have a request for a view, it usually does. And there [a votação] ends up on Wednesday. I’m very calm, let’s see when everything is done. At least I’m optimistic it was all agreed,” she says.

Before the vote, the CAE will hold a public hearing to debate the text at the request of the opposition leader in the Senate, Rogério Marinho (PL-RN). Economists José Márcio Camargo, professor at PUC-RJ (Pontifical Catholic University of Rio de Janeiro), and Marcos Mendes, professor at Insper, were invited.

The proposed fiscal framework sent to Congress provides for a new spending limit, more flexible than the ceiling approved by the Michel Temer (MDB) government. The rule provides for the correction of expenses for inflation plus an additional installment, which varies between 0.6% and 2.5% per year – depending on the pace of increase in collection.

In Temer’s ceiling, expenses with Fundeb and FCDF are outside the limit, a model that was replicated by the team of Minister Fernando Haddad (Finance) in the original proposal. The Chamber, however, changed the text to include these expenses under the new framework.

The original proposal for the fiscal framework established the correction of the limit by inflation from January to December of the previous year.

The Chamber’s text changed the time frame to 12 months until June of the previous year, since the PLOA (Annual Budget Law proposal) is sent until August 31 of each year, and the parameters are closed in July — when there is only data inflation data available until June.

The purpose of the change was to remove the projection component, which would give the government an opportunity to overestimate inflation and, thus, be able to spend more in the following year. The government would like to reverse the changes because January-December inflation tends to be higher than the 12 months through June.

Despite the government’s robust base in the Senate, the original idea also encounters resistance among parliamentarians in the House.

The leader of Podemos, Oriovisto Guimarães (PR), one of the holders of the CAE, says that the FCDF and Fundeb exceptions are already being taken into account by the financial market, but he defends the text of the Chamber in relation to the calculation of inflation to avoid that each year’s budget proposal has to use projections instead of already measured numbers. “Working with real inflation means leaving the world of fantasy”, he says.

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Remember the framework and its changes

What is the framework? Bill under discussion to regulate how federal expenses should grow over the years, replacing the current spending ceiling. According to the text, the increase in expenses will correspond to the inflationary correction plus a real increase of 0.6% to 2.5% each year, a percentage that grows within this range if there is an increase in revenues.

What changed in the framework in the approval in the House? The House reduced the list of exceptions to the spending cap originally proposed by the government. Fundeb, all investments in state-owned companies, transfers to states and municipalities to fund the nursing floor and the FCDF (Constitutional Fund of the Federal District) came under the general rule of expenditure.

In addition, the Chamber changed the period for verifying the inflation that influences expenses, from the 12 months ending in December of the previous year to the 12 months ending in June of the previous year (which may lead to fewer expenses next year).

What is being discussed in the Senate? The proposal’s rapporteur in the Senate, Omar Aziz, plans to remove Fundeb and transfers to FCDF from the expenditure limit.

In addition, he wants to resume the government’s original proposal to establish the correction of the limit for inflation until the end of the previous year (which may provide for more expenses next year).