Government and Congress fight over resources and threaten the fiscal target

The tense negotiations surrounding the Budget Guidelines Law (LDO) for 2024, approved last Tuesday (19) by Congress, outlined a clash between parliamentarians and the government of President Luiz Inácio Lula da Silva (PT), where legislators They emerged victorious, with around R$50 billion allocated to parliamentary amendments – the final amount will still be defined in the Budget Law (LOA) that will be voted on this afternoon in Congress.

The government, in turn, managed to negotiate to remove from the fiscal target investments of up to R$5 billion made by state-owned companies within the Growth Acceleration Program (PAC), and also articulates with parliamentarians to prevent Lula’s main bet on infrastructure lose space in next year’s Budget.

But pressure to increase spending in an election year could still result in a new confrontation between the Executive and Legislative, as early as the first quarter of 2024, with the possibility of a review of the fiscal target of zero deficit established in the LDO. This would open up the possibility for the government to spend more than it collects, with negative impacts on the Brazilian economy, such as increased inflation and higher interest rates. The pressure for this to happen comes mainly from the government base.

What was defined in the LDO

The text of the law, which sets out the rules for next year’s Budget, introduced something new by establishing a calendar for the mandatory execution of amendments by the government, thus ending a prerogative that previously belonged to the Ministry of Finance, as a bargaining chip for the Planalto in the approval of your projects. The government is now even more subject to Parliament’s decisions, and even the college of leaders has lost part of its power to mediate isolated demands from deputies, complicating the dynamics between the Executive and Legislative branches.

Given that next year will be marked by municipal elections, the release of individual amendments and state benches should take place in the first half of the year. These two types of amendments total, so far, around R$36 billion, without commitments related to structuring projects of the Union, but rather to the interests of parliamentarians in their electoral bases.

The government will only be able to block payment in the case of amendments from House and Senate committees, which are not mandatory, but follow the same proportion as non-mandatory federal expenses. As stipulated by the LDO, at least 0.9% of the 2022 net current revenue will be allocated to committee amendments, with two thirds allocated to the Chamber and one third to the Senate. Initially, it was expected that R$11.3 billion would be allocated to committee amendments, but the Budget rapporteur, deputy Luiz Carlos Motta (PL-SP), increased the amount to R$16.7 billion.

Resources allocated to municipal elections increased from R$900 million in 2020 to R$4.9 billion, to be managed by party leaders. However, the origin of these resources for the so-called electoral fund was not specified, which promises to generate new debates during the vote on the 2024 Budget. While the government prefers that the money come from committee amendments, parliamentarians suggest cuts to PAC resources .

Regarding the PAC, the amount allocated to the program fell from the R$61.3 billion proposed by the government to R$44.3 billion in the replacement for the Annual Budget Law (LOA) project. The reduction is R$17 billion.

The LDO also includes an alternative provision that limits the maximum amount to be allocated by the government in the event of a mismatch between revenues and expenses. In practice, the Executive will only need to block up to R$23 billion in the 2024 Budget, just over half the amount that could be required by the rules of the new fiscal framework. This tightening, however, may be insufficient to achieve the bold goal of zero deficit.

PT criticizes the fiscal target and calls for a deficit to “not lose an election”

According to the LDO rules, the government will have to release resources for all tax amendments in the first half of the year, making payments until the end of the year. During the discussion of the rapporteur’s opinion, the deputy leader of the government in Congress, deputy Carlos Zarattini (PT-SP), withdrew proposals to eliminate the changes, but indicated the possibility of presidential vetoes.

Representative Lindbergh Farias (PT-RJ), also deputy leader of the government, accused the intention of forcibly changing the government system, referring to a “de facto semi-presidentialism, a budgetary parliamentarism”.

Prominent members of Lula’s party, such as José Guimarães (PT-CE), leader of the government in the Chamber, and the national president of the party, deputy Gleisi Hoffmann (PT-PR), add their voices to criticism of the fiscal target proposed by the minister of Fazenda, Fernando Haddad. They propose a revision to a deficit of up to 1% of the Gross Domestic Product (GDP), justifying the change explicitly by the need to “win the election”.

In the opposition camp, the LDO became a symbolic stage for flags that will be explored in the electoral campaign. Altineu Cortes (PL-RJ), leader of former president Jair Bolsonaro’s (PL) party in the Chamber, presented an amendment prohibiting the government from financing sex changes in children and sponsoring invasions of private properties, among other measures. The amendment was approved, as only 141 of the 513 deputies and 26 of the 81 senators voted against the so-called “patriot amendment”.

This vote highlights the government’s dependence on Centrão, a factor to be considered in maintaining the zero deficit target, whose non-compliance, to be compensated by artificial means (fiscal pedaling), could serve as a justification for opening a process impeachment of Lula, similar to what happened with Dilma Rousseff (PT). The pressure is great and the government does not seem to have the votes to resist.

LDO made the Legislature more independent, says expert

For Arthur Wittenberg, professor of Institutional Relations and Public Policies at Ibmec-DF, the concrete result of the LDO text approved by Congress was an additional tightening on the part of parliamentarians on the free resources of the Budget. This further reduced the already narrow negotiating margin available to the government.

“The combination of the commitment of resources for tax amendments at the beginning of the year, with full payment by December, in addition to the reduction to just over half of the contingency ceiling for the amounts committed, from R$56 billion to R$23 billion, resulted in the Legislature a position of special independence in relation to the Executive”, he summarized.