Framework: rapporteur wants adjustment to avoid budget cut – 06/14/2023 – Market

The text of the new fiscal framework must undergo changes in the Federal Senate to remove Fundeb (Fund for the Maintenance and Development of Basic Education) from reaching the limit and make adjustments that would avoid a cut in funds in the 2024 Budget proposal —estimated by the government in up to R$ 40 billion.

Transfers to the FCDF (Constitutional Fund of the Federal District) should also be outside the new ceiling. The indications were given this Wednesday (14) by the proposal’s rapporteur, Senator Omar Aziz (PSD-AM).

Changing the text makes it necessary to send the project back to the Chamber of Deputies, which will have the final word on the project. To avoid delays in the process, Aziz has been talking with the mayor, Arthur Lira (PP-AL), and with whom he reported the proposal in the House, deputy Claudio Cajado (PP-BA), to make the changes by mutual agreement.

“I know very well the importance of putting this [em votação] next week, in agreement with the Chamber. That’s why I’ve been talking to Arthur and Cajado”, said the senator. “The Copom [Comitê de Política Monetária] will meet next Wednesday, the 21st, and I don’t want that tomorrow or the day after to be justified that, because it didn’t approve, the interest didn’t fall”, he added.

The proposed fiscal framework sent by the government of Luiz Inácio Lula da Silva (PT) 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 measure generated protests from the DF bench, which fears a flattening of resources for the Constitutional Fund, and from parliamentarians linked to education.

The secretary of the National Treasury, Rogério Ceron, went so far as to state that Fundeb’s expenses grow at their own pace and, by staying under the limit of the rule, could reduce the fiscal space for other public policies in the medium and long term.

“The first point on the issue of Fundeb is the following. Even if some analyze that nothing will be lost, no, it is an emblematic issue. You do not have to joke about it. Tomorrow or the day after, people may say that what we approved here it’s hurting at the end”, said Aziz, justifying the decision to change.

Regarding the FCDF, the senator said that he was touched by the Federal District bench.

“Strip [do arcabouço] because look, if Brasilia is feeling harmed, who am I to harm a Brazilian state? We are a federation. It would be the same as harming my state. I wouldn’t either. It has to be fair. What I don’t want for myself, I don’t want for others,” he said.

Regarding the adjustment to avoid cutting expenses in the Budget proposal, Aziz stated that he intends to return to the government’s original proposal of establishing the correction of the limit for inflation from January to December of the previous year.

The Chamber’s text changed this 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.

This Tuesday (13), the Federal Budget Secretary of the Ministry of Planning, Paulo Bijos, said that the change made by the Chamber would lead to a cut of up to R$ 40 billion in current expenditures and public investments in the proposed Budget for 2024, as the government relied on the use of inflation from January to December —which tends to be higher than the one observed in the 12 months through June.

The permanence of the format approved by the Chamber 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 amounts next year, proposing lower expenditures right 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.

“Some people and I are concerned about you arriving in May [de 2024] and having to approve PLN [projeto de lei do Congresso Nacional, usado para abrir créditos no Orçamento] for us to have resources to pay the cost”, said Aziz. “In December you have higher inflation, you have higher consumption”, he added.

The rapporteur said that he cannot guarantee that the Chamber will maintain all the changes made by the Senate, but stated that the dialogue with Lira and Cajado seeks a consensus on the issues.