Framework: wing fears restricted PAC and more power to Congress – 06/21/2023 – Market

The discussion on the calculation of the inflation index to be used in the correction of the expenditure limit of the fiscal framework opened an impasse within the management of Luiz Inácio Lula da Silva (PT).

A wing of the government, led by the Ministry of Planning and Budget, assesses that the goal adopted by the National Congress may restrict the plans for the new PAC (Program for Accelerated Growth) and give the Legislative a billionaire bargaining power in the negotiations to unlock the investments.

The alert, however, has not been supported by the Ministry of Finance and the Planalto Palace, which adopt a more cautious stance and try to avoid a clash with the Chamber of Deputies, which was responsible for the change in the formula.

Minister Simone Tebet (Planning) has already publicly stated that the design approved by the deputies should require a cut of BRL 32 billion to BRL 40 billion in funding expenses and investments in the submission of the 2024 Budget, on August 31. The folder, however, is isolated in alerts about the problem.

The text of the framework even allows the government to recompose these values ​​during the execution of the Budget, through the opening of new credits, but this can only be done through a PLN (National Congress bill) with the approval of the parliamentarians to be approved.

According to interlocutors interviewed by Sheetthe fear is that these credits will become a negotiation instrument with the Legislature, since, without them, several investment projects and funding expenses will be compromised.

Technicians compare the situation to the period in which the Executive failed to comply with the so-called golden rule of the Budget and needed a special authorization from Congress to cover current expenses, such as salaries and social benefits, with resources obtained through the issuance of new public debt securities.

Golden rule credits, negotiated year after year, reached more than R$200 billion and required a delicate articulation operation, with repercussions on other agendas of interest to the then government of Jair Bolsonaro (PL).

With the PLN in the hands of parliamentarians, in addition to empowering Congress, the government opens loopholes for a more diffuse management of expenses, since parliamentarians can reallocate expenses according to their preferences. In practice, they could choose to contemplate their electoral strongholds instead of following the government’s decisions.

There are still those who warn about the potential threat to the projects of the new PAC, designed to be one of Lula’s showcases — which has as one of his campaign promises to leverage investments.

The risk is to launch the program this year and, already in 2024, be forced to reduce budgeted expenses in view of the smaller space available in the fiscal framework. The topic is seen by some members as a political trap for the government.

Although the framework introduces a floor for investments, some ministries have already been forced to review their list of projects for the new PAC in view of the smaller space in the framework approved by the Chamber — in a sample of the future risk for this policy.

The impasse exists because of a change in the framework correction formula. The team of Minister Fernando Haddad (Finance) proposed, in the original text, to update the spending limit based on inflation from January to June of the previous year, plus the estimated variation between July and December of the same year. This rule marked out the parameters of the 2024 PLDO (Budget Guidelines Bill), sent in April.

During the vote in the Chamber, deputies preferred to remove the projection component to prevent overestimated inflation from boosting government spending. The correction started to be made by the index accumulated in 12 months up to June of the previous year.

As the accumulated inflation until the middle of the year will be lower than the variation observed until the end of 2023, the change represents a need to tighten the spending limit for the 2024 Budget proposal. can be incorporated later through the new credits.

Planning tried to make changes to the project in the Senate, such as a correction of the framework due to inflation until November or December, to try to alleviate the problem. Another idea was to include in the project an authorization for the government to send the Budget proposal already with the extra expenses conditioned to the opening of new credits.

The rapporteur for the framework in the Senate, Senator Omar Aziz (PSD-AM), told allies that he should not incorporate these changes into the text, as there is no agreement between the leaders. Even if the scenario changes and the Planning request is contemplated, there is no commitment from the Chamber with this theme. The House will have the final word on the project.

Behind the scenes, the assessment is that the Chamber does not intend to give up the power to authorize or not the opening of extra credits, which guarantees negotiating power to parliamentarians — something valuable at a time when the House is trying to demonstrate strength before the government.

In conversations with allies, the mayor, Arthur Lira (PP-AL), has said that the version approved by the deputies is better for the government. In the original format, which updated the framework based on estimated inflation up to December, the Executive would need to set aside resources if its estimates —and consequently the expansion of the spending limit— proved to be too optimistic.

In the design approved by the Chamber, if inflation accelerates by the end of the year, the government could increase resources instead of cutting them, say supporters of the model.

In Planning, there is some discomfort with the direction of the discussion. Planalto has demanded “clearer numbers” from the folder to decide whether or not to take up the fight. Behind the scenes, technicians recognize that the scenario is not favorable, since the issue is far from being a government position, defended by all with the same intensity.