Framework: Lula will be able to spend an additional BRL 15 to BRL 28 billion – 05/24/2023 – Market

The government of Luiz Inácio Lula da Silva (PT) could spend an extra BRL 15 billion to BRL 28 billion in 2024 if it manages to raise revenue next year, according to a device included by the Chamber of Deputies in the new fiscal framework. The text still needs to be validated by the Federal Senate.

After the criticism generated by the maneuver of fixing the increase in expenses at the ceiling of 2.5% in the first year of the rule, the rapporteur, deputy Cláudio Cajado (PP-BA), included in his opinion that a compromise was put to the vote: Initially, it restricts the expansion of government spending, but authorizes the opening of new credits in the event of a positive surprise on the revenue side.

According to calculations by the Chamber consultancy, the text approved by the deputies should result in an initial increase in the expenditure limit of 1.15% to 1.8% above inflation. The account is equivalent to 70% of the real increase in revenue expected to occur in the 12 months until June of this year.

The percentage should be used as a reference in the preparation of the LOA (Annual Budget Law) for 2024, to be delivered on August 31, and is within the margin for growth in expenses stipulated in the new framework (0.6% to 2.5 % per year).

The team of Minister Fernando Haddad (Finance) had an expectation that the rule approved in Congress would enable an advance close to the maximum limit next year, to accommodate a series of expenses whose increase is already contracted.

In order not to frustrate this intention, the parliamentarians made a concession to the government and validated, on the night of this Wednesday (24), a device that authorizes the Executive to open additional credits, in case there is a prospect of a more intense increase in the collection until the end. from 2024.

The economic team will be able to calculate, in May of next year, when the government releases the second bimonthly evaluation of the Budget, an estimate of the real increase in revenue in relation to 2023 and apply the proportion of 70%. If this results in a number greater than the one that corrected the spending limit in the LOA, the economic team can open new credits in an equivalent amount.

In practice, the approved version allows for extra revenue in 2024 to make room for more spending. According to the Chamber’s calculations, the additional expansion will be between 0.7% and 1.35% – which results in R$ 15 billion to R$ 28 billion.

In the government’s own calculations, if the differential stays at 1%, this will open a space of R$ 20 billion in next year’s budget.

The extra expense may also be incorporated into the calculation basis for 2025 and subsequent years, with one exception: if at the end of 2024 the expected gain in collection is frustrated —making the expenditure limit grow by more than 70% of the increase in collection—, excess credits will be deducted from the 2025 limit. The excess amount will also be removed from the calculation base for subsequent years.

In the accounts of Felipe Salto, chief economist at Warren Rena, setting expenditure growth at 2.5% next year could increase spending by R$ 29.3 billion, generating a cascading effect in the following years greater than BRL 36 billion a year.

“Under the new regulation, the result may be, in practice, a real rate of change that will be between 1.1% and 2.5%”, he says.

The change made by Congress represented a concession to Haddad’s team, which wanted greater initial space to accommodate expenses such as the new nursing floor and the resumption of health and education minimums linked to a percentage of revenues —a rule that could lead to a faster growth of these expenses, putting pressure on the framework.

However, the Ministry of Finance itself has drawn attention to the fact that extra spending can only occur if the government ensures compliance with the primary result target. For 2024, the economic team’s commitment is to zero out the deficit, balancing income and expenses.

If the opening of additional credits is at risk, the text itself obliges the government to contingency resources — in practice, it would be the same as spending with one hand and curbing with the other.

The text approved by the Chamber also changed the investment floor, which, in Salto’s assessment, will give the government more flexibility in managing the Budget.

The original proposal foresaw a minimum investment level of around R$75 billion (equivalent to the forecast for this year), a value that would be corrected year after year by inflation. In the text approved by the Chamber, this floor will be 0.6% of GDP.

“The new rule, when compared to the previous one, opens BRL 14.9 billion in discretionary expenses [em 2024]increasing the space to make a primary result”, assesses Salto. According to him, however, there is no guarantee that this rule will continue to be more advantageous from the point of view of budgetary flexibility.