Gap generated by PEC of Precatories may reach 2% of GDP, says TCU

Known as PEC dos Precatorios, the amendment to the Constitution approved in 2021 that authorized the federal government to postpone the payment of debts recognized by the Justice could generate an impact equivalent to up to 2% of the Gross Domestic Product (GDP) deficit in 2027, according to a report of the Federal Court of Accounts (TCU).

Proposed by then-president Jair Bolsonaro (PL), Constitutional Amendment (EC) 114/2021 allowed the Union to pay only part of the precatorios due in the following five years, from 2022 to 2026, in addition to changing the methodology for calculating the ceiling correction of expenses.

Thus, the Union failed to pay BRL 43.8 billion of the BRL 89.1 billion originally committed to precatorios in 2022, in addition to gaining additional space of another BRL 62.2 billion with the update of the ceiling rule. The maneuver allowed the Bolsonaro government to increase the average amount of the Auxílio Brasil (currently Bolsa Família) installment in his last year in office, when he would run for re-election.

At the time the PEC was being processed, the then Minister of Economy, Paulo Guedes, went so far as to say that, without the postponement in the payment of precatories, the government would not be able to meet all its mandatory expenses, including the payment of civil servants’ salaries.

In the report, the TCU recognized the fiscal risks of the PEC, which, by generating a progressive accumulation of precatories, will imply an increase in the public debt. The court of accounts also recommended that the Ministries of Finance and Planning and Budget adopt, “in a coordinated manner, the necessary measures to prepare annual estimates of accumulated liabilities as a result of the payment limits for precatorios” established by the amendment.

Still according to the document, the estimates must include the indication of compensatory measures for the maintenance of the fiscal balance, based on different scenarios of evolution of values.

Rombo could reach BRL 744.1 billion in 2026

According to studies by the Independent Fiscal Institution (IFI), which served as the basis for the TCU’s analysis, the PEC of Precatorios should generate a fiscal gap that can vary from R$ 121.8 billion to up to R$ 744.1 billion at the end 2026, when the debt payment limits expire.

At the time the PEC was being processed, the Chamber’s Budget and Financial Inspection Consultancy estimated that the text could generate up to BRL 502 billion in precatories by 2029, and up to BRL 1.45 trillion by 2036.

The court also warns that the National Congress did not form a joint commission, provided for in EC 114/2021, to examine the factors that may generate more precatories and judicial sentences contrary to the Federal Public Treasury. According to the text, the group should have been created by December 15, 2022.

Despite this, the control body did not open a process that could result in sanctions for those responsible for the measure.

TCU’s analysis was based on a representation presented by deputies Fábio Trad (PSD-MG) and Professor Israel (PSB-DF), who requested an assessment of the effects of the PEC on Precatories. In court, the process was reported by Minister Antonio Anastasia.

In an agreement to reduce resistance to the PEC among parliamentarians linked to education, they were prioritized in the queue of precatory payments from the Union with states and municipalities related to the former Fund for Maintenance and Development of Elementary Education and Valuation of Teaching (Fundef).

In 2022, excluding Fundef debts, the total volume of precatorios was R$42.17 billion, but the Union paid only R$19.87 billion, generating a liability of R$22.31 billion, to be corrected by the inflation.

For 2023, debts reach BRL 73.99 billion, including amounts not paid last year. The payment limit under the PEC, however, is R$ 17.1 billion, which means that, at the end of the year, the liability for precatories will be accumulated at R$ 56.85 billion.

In the technical instruction, prepared by the Audit Unit Specialized in Budget, Taxation and Fiscal Management (AudFiscal) of the TCU, technicians from the agency point out that “the limit on expenses with writs relieves budget execution in the short term, but puts pressure on it in the medium term”.

This budget relief provided by the PEC allowed the Bolsonaro government to close its accounts, and now benefits the government of Luiz Inácio Lula da Silva (PT), which is looking for revenue to meet fiscal targets.

“PEC 23/2021 [PEC dos Precatórios] contained a political choice to manage the fiscal reality in view of the projection of significant growth in expenses with precatories and current legislation”, says an excerpt from the document. “This choice is the prerogative of the Executive Branch, whose proposed amendment complied with the legislative process without material and formal defects”, concludes the TCU.