Framework: Government wants to avoid cut of BRL 40 billion – 06/13/2023 – Market

The Luiz Inácio Lula da Silva (PT) government wants to make adjustments to the starting point of the new fiscal framework to avoid a cut of up to R$ 40 billion in current expenditures and investments in the 2024 Budget proposal, which needs to be sent by 31 of August this year.

The permanence of this scenario would oblige the PT administration to pass the scissors on the resources of several public policies. Even if the framework itself authorizes the recomposition of these values ​​next year, the assessment is that proposing lower expenses already at the start of discussions would be delicate from a political point of view, in addition to affecting the organization and management of the Budget.

One of the possibilities is to change, in the fiscal rule bill itself, the inflation that corrects the expenditure limit annually. The disadvantage of this path is that the text, currently being discussed in the Senate, would need to be voted on again in the Chamber of Deputies, further delaying the schedule.

Another option is to include in the 2024 PLDO (Budget Guidelines Bill), still under analysis by Congress, an authorization for the government to include the R$ 40 billion conditional on the opening of new credits next year. The current design of the framework already contains a loophole to allow this opening of credits in the next fiscal year.

Choosing the best strategy will be a political decision. In recent days, the need for tightening has been the target of an alert by the Minister of Planning and Budget, Simone Tebet. According to her, the figures could be between R$ 32 billion and R$ 40 billion.

The values ​​had also already been pointed out by economists, who saw the possibility of opening credits as a maneuver to allow for extra spending in 2024.

The risk of cutting discretionary powers in the Budget proposal stems from a change made by the Chamber of Deputies to the text proposed by the team of the Minister of Finance, Fernando Haddad.

In the original design, the expenditure limit would be corrected by the accumulated inflation up to June of the previous year and by the estimated price variation between July and December of the same year, plus the portion of the real increase between 0.6% and 2.5% allowed by the rule.

Deputies assessed that the projection portion would allow the government to overestimate inflation and, thus, obtain a broader limit for spending. Therefore, the opinion of Deputy Cláudio Cajado (PP-BA) changed the correction for inflation in 12 months until June of the previous year – without any projection component included.

The change affected the Treasury’s plans, since the IPCA (Extended National Consumer Price Index) in the 12 months through May was 3.94%, less than the 5.58% increase expected by the SPE (Secretary of Policy Economy) until the end of the year.

“The project was very well debated, very well prepared, in a plural way. But we now have a challenge for the elaboration of the PLOA [Projeto de Lei Orçamentária Anual]”, said the secretary of the Federal Budget of the Ministry of Planning, Paulo Bijos.

He mentioned that the cut could be R$ 40 billion, in “big numbers”, if the current scenario continues. “The discussion will involve adjusting the basis,” he said. “The conditioned expense is a possibility, but I am not going to anticipate what will be the way to equate the situation.”

If the choice is to change the text in the Senate, the secretary stressed that the process will be conducted in dialogue with the Chamber, which would have the final word on the text.

Next Thursday (15), Haddad should have a meeting with Senate leaders to discuss the framework and, according to Bijos, one of the topics discussed should be the intention to make this adjustment to the starting point of the new rule.

The secretary said that the rule approved by the Chamber was tightened, which could create obstacles in the elaboration of the Budget.

In addition to a smaller fiscal space, the government will need to accommodate a series of expenses under the new limit, dubbed by the secretary of “eat quotas of discretionary expenses”. The list includes the resumption of the health and education floors linked to the collection, which will result in values ​​greater than those that have been practiced under the spending ceiling approved by the Michel Temer (MDB) government.

As shown to Sheet in May, market estimates point to an increase of up to R$ 35 billion due to the new floors in health and education, of which R$ 29 billion would be in health alone. The values ​​are close to internal government estimates.

Other challenging items are the investment floor (around BRL 70 billion), the reserve for parliamentary amendments and the cost of funding the machine, where the government sees little fat to reduce compared to the current BRL 45 billion.

“Let’s try to adjust. We want to find a balance point, neither slack nor contribute, have an adequate level [de despesas]”, said Bijos.