Framework is set for August and leaves the Budget at the limit – 07/07/2023 – Market

The president of the Chamber of Deputies, Arthur Lira (PP-AL), confirmed this Friday (7) that the vote on the new fiscal framework will be held in August, on the return of the parliamentary recess. The postponement, although not enough to worry the economic team, leaves the preparation of the 2024 Budget within the deadline.

According to government interlocutors, it is possible to complete the PLOA (Annual Budget Law Project) for 2024 in a timely manner and smoothly if the new fiscal framework is approved in the first week of August. However, technicians consider that a possible postponement beyond this deadline is cause for apprehension.

Lira justified the delay on the grounds that the rapporteur for the framework, Deputy Claudio Cajado (PP-BA), is not in Brasília and has not yet made the opinion available. According to him, the focus of parliamentarians was 100% on Tax Reform throughout the week of “concentrated effort” for the approval of economic issues.

One day before the confirmation of the postponement, Minister Fernando Haddad (Finance) publicly stated that he saw “some” damage in the elaboration of the Budget if the votes on the economic agenda were left for August.

“You don’t deliver the Budget on August 30th, starting to prepare it on August 10th. You don’t make a Budget in 20 days. So, the approval of the fiscal framework and the CARF helps to distribute the quotas to the ministries, a series of administrative procedures that are more solid with the pieces already approved”, he said.

On the other hand, the Treasury’s view that the fiscal framework is already well underway in Congress has eased concerns. Minister Simone Tebet (Planning and Budget) downplayed the issue, stating that the delay would not hinder the government and that the portfolio will work diligently in preparing the budget piece.

“Both on the revenue side, which is Carf, and on the expenditure side, which is the framework, we have the instruments to present the [proposta de] LOA until August 31st without any damage. Haddad said ‘it will harm’ in the sense that it will give the Ministry of Planning and Budget a little more work. But the team is ready to work 24 hours a day and meet deadlines, everything is smooth, “he said.

According to Lira, the parliamentarians want to favor the version of the report that was approved in the Chamber of Deputies, admitting only a few small changes.

“We are not going to vote on the framework [nesta sexta]but it is stated that it will be voted on with minimal changes to the text that was approved in the Chamber”, said Lira in an interview with GloboNews, without specifying which changes.

According to the president of the Chamber, this should not interfere with the forwarding of the matter because the framework was voted on in both Houses. “The changes are basic, with respect to some issues that are not very significant for the goals that were outlined there in that project.”

According to parliamentarians, the main point of divergence corresponds to the inclusion or not of the FCDF (Constitutional Fund of the Federal District) within the new fiscal rule.

In the initial proposal made by President Lula’s government (PT), the fund was outside the framework, but was included in the restrictions by the rapporteur of the text in the Chamber.

When the project went to the Senate, however, the rapporteur Omar Aziz (PSD-AM) decided to exclude it from the restrictions, also in response to pressure from congressmen from the Federal District.

Aziz also removed Fundeb (Basic Education Maintenance Fund) from the fiscal framework, which was already excluded in the government’s initial proposal, and went further by also removing expenses with science, technology and innovation.

Still in the Senate, Tebet articulated a new device that allows the Executive to send the 2024 PLOA with about BRL 32 billion in expenses subject to approval by Congress of a supplementary credit. The measure was taken to compensate for the change in inflation used to calculate the spending limit – which, with the change in the text, was lower than previously predicted by the government.

Due to the changes, the text had to be resubmitted to the Chamber and each of these points will have to be evaluated by the deputies.

Despite Lira’s statements, opposition and situation parliamentarians heard during the week say that the tendency is for most of these amendments to be accepted. There is still an obstacle regarding the Constitutional Fund, on which there was no consensus.

The amendment made by the leader of the government in Congress, Senator Randolfe Rodrigues (Rede-AP), after an appeal by Tebet’s team, on the other hand, is not seen as a problem, not least because it empowers Congress over the BRL 32 billion in question .

Earlier this Friday, Lira had defended the advancement of the economic guidelines being discussed in Congress so that the issue could be closed before the next meeting of the Copom (Monetary Policy Committee) of the Central Bank, on August 1st and 2nd.

The president of the Chamber understands that this would help to dispel the uncertainties surrounding the fiscal issue and could give more comfort to the BC to start the interest rate cut cycle, as desired by the Lula government (PT). The basic rate (Selic) is currently set at 13.75% per year, and its high level has been the target of criticism by members of the Executive and Legislative branches.

In the minutes of the last meeting, in June, the BC collegiate highlighted among the risk factors for price increases the “residual uncertainty” about the final design of the framework and its impacts on expectations for the path of public debt and inflation .

For Lira, although the vote on the framework has been postponed, the approval of changes in Carf will help in the process of loosening monetary policy. “With all the signs that politics has been giving, that Congress [Nacional] been doing, what the Economy has been doing, I have no doubt that we will have, from August onwards, the beginning of a decrease in interest rates. It’s our expectation,” he said.

Despite the message to BC, the president of the Chamber pondered his speech preaching respect for the autonomy of the monetary authority.