Fux votes in favor of regularizing court orders – 11/27/2023 – Market

Rapporteur of the action on the payment of court orders, minister Luiz Fux, of the STF (Supreme Federal Court), voted in the early hours of this Monday (27) in favor of authorizing the government of Luiz Inácio Lula da Silva (PT) to regularize the stock of court sentences without running into tax rules until the year 2026.

In an extraordinary session in the virtual plenary, Fux declared the unconstitutionality of the ceiling for the payment of court orders, created in 2021 under the management of Jair Bolsonaro (PL), and accepted the request from the AGU (Attorney General of the Union) to allow the opening of an extraordinary credit to pay off the liability.

The accumulated stock between 2022 and the forecast for 2024 is estimated by the current economic team at R$95 billion. According to Fux’s vote, the amount could be paid later this year, outside the spending limit and without affecting the fiscal target.

On the other hand, the reporting minister did not accept the government’s most controversial request: classifying part of these sentences as financial expenses, which would leave them outside the limits of the new fiscal framework and the primary result target.

The measure, anticipated by Sheet in August, it was proposed by the Ministry of Finance as a solution to prevent the future trend of these expenses from generating pressure on fiscal rules in the coming years. The criterion, however, was criticized by economists and deviates from international standards followed by the Central Bank, the body responsible for official public finance statistics.

In his vote, the rapporteur proposes an alternative: authorizing the government to open extraordinary credit to pay not only the amounts held up between 2022 and 2024, but also the amounts that would be accumulated in 2025 and 2026, the last years of the court-ordered ceiling.

In practice, Fux’s proposal allows the teams of ministers Fernando Haddad (Finance) and Simone Tebet (Planning) to maintain the current projections for the Budget until the end of the term, paying the excess amounts of court sentences without running into tax rules. The full amount of these debts would only need to be accommodated under the limits from 2027 onwards.

According to government interlocutors, acceptance of this alternative was tested with members of the economic team in recent weeks, without major objections. In his vote, Fux argues that the measure is necessary so that “the credibility of the tax regime can be maintained”.

The STF’s final decision still depends on the position of the other ministers. They have until 11:59 pm this Monday to speak in the virtual plenary. The president of the STF, minister Luís Roberto Barroso, followed the rapporteur’s vote.

If Fux’s position prevails, the court paves the way for the government to “depeal” the court orders before 2027, when the end of the ceiling for the payment of these debts could detonate a fiscal bomb exceeding R$250 billion.

The origin of the problem was the approval of the so-called PEC do Calote. The measure created an annual limit for the payment of court sentences, postponing excess amounts to the following year.

The change, adopted by the Bolsonaro government and the National Congress to open fiscal space for social spending and amendments in an election year, generated a billion-dollar waiting list of creditors, which could be companies or individuals.

In his vote, Fux says that the postponement of payment of precatório debts from 2022 “proved to be a proportional and reasonable measure so that public authorities could face the situation arising from a global pandemic”.

However, according to the minister, it is “undeniable” that, from the 2023 financial year onwards, the measure began to be characterized as an “out of line measure”.

“It is to say that the limitation of individual rights, which initially appeared as an effective remedy to combat the social disturbances caused by Covid-19, is now heading towards being characterized as a poison, with the possibility of causing severe harm, in the near future , the payment of the same expenses with previously prestigious social actions”, he states.

The rapporteur also highlights that the situation that resulted in the adoption of “extreme measures” to create space in the Budget did not continue after 2022. He points out that the fiscal rule in force at the time, the spending ceiling, was replaced by the new framework Supervisor.

“It can be concluded from this context that the immediate solution to the case at hand is the recognition of the legitimacy of the measure [teto para precatórios] only for the year 2022 and its consequent incompatibility with the constitutional clauses from the moment the events that justified the suppression of individual rights regarding the receipt of the State’s debt from individuals ceased”, says the vote.

Fux also determines that “it is up to the Executive Branch to resume payment of court orders sent by the Judiciary without any budgetary limitations from the 2023 financial year”, as well as to eliminate “immediately” the liabilities accumulated until then.

The regularization of amounts through extraordinary credit allows the payment of the accumulated stock to be made without affecting the expenditure limit in force in 2023. The STF also authorized the government to deduct this expense from the primary result calculated for the purpose of verifying the fiscal target.

This measure is essential to avoid exceeding this year’s target. The government projects a loss of R$177.4 billion, a value that rises to R$203.4 billion according to the BC’s criteria, due to a statistical discrepancy. The official figure is already very close to the deficit of R$213.6 billion authorized by the LDO (Budget Guidelines Law) of 2023.

Even with the exception to the rules granted by the STF, the payment will generate an increase in Brazilian public debt. The movement, however, was already expected and even defended by economists, for whom the country was simply keeping an uncontroversial commitment out of the statistics. Court orders are issued after the Union has been condemned in a final sentence, with no possibility of appeal.

The call for the extraordinary session to judge the issue of court orders occurred after uneasiness between the government and the STF. On Wednesday night (22), the Senate plenary approved a PEC (proposed amendment to the Constitution) that limits the scope of individual decisions by court ministers.

Members of the STF classify the vote as an “attack” made by the Legislature and saw the Lula government’s actions as crucial for the approval of the matter. The government leader in the Senate, Jaques Wagner (PT-BA), voted in favor of the PEC.

As shown by Sheet, there was a fear within the Executive that the friction would have negative repercussions on the judgment of court orders, but the impact ended up occurring within the deadline. The initial forecast was that the matter would already be settled last Friday (24).

Members of the economic team entered the field to speak with ministers and calm tensions. On Thursday night (23), Lula also had a dinner with members of the court to reduce stress.