Haddad tries to circumvent minimum levels for health and education, left-wing flags

Historically defended by the PT and other left-wing parties, the minimum percentages of spending on health and education, proportional to the Union’s revenue, have now become yet another headache for the Minister of Finance, Fernando Haddad.

Suspended during the validity of the spending ceiling, the need to meet the floors in 2023 could increase the hole in public accounts by around R$20 billion. Therefore, the government of Luiz Inácio Lula da Silva (PT) is working on several fronts to get rid of the obligation in this exercise and circumvent the rule in the coming years.

Article 212 of the Constitution establishes that the Union must annually invest 18% of its net tax revenue (RLI) in the area of ​​education, which includes transfers, maintenance and development of education.

For health, Constitutional Amendment 86, approved in 2015, under the government of Dilma Rousseff (PT), provided for the obligation to allocate an increasing percentage of net current revenue (RCL), which started at 13.2% in 2016 and would reach to 15% in 2020.

In December 2016, during the mandate of Michel Temer (MDB), Constitutional Amendment 95 was enacted, which established the spending cap rule, limiting the annual increase in Union expenses to correction for inflation. For the areas of health and education, specific rules were created to avoid freezing expenses, but the constitutional floors were disregarded.

According to the new rule, minimum health expenditures should be equivalent to 15% of net revenue in 2017, anticipating the minimum that would only be reached in 2020. However, from 2018 onwards the value began to be only corrected by the National Index Broad Consumer Price Index (IPCA).

In the case of education, the constitutional floor was maintained at 18% of tax collection for 2017, but from 2018 onwards the amount executed also started to be corrected only by the official inflation indicator.

At the time in opposition, the PT defended the maintenance of the original minimum levels. “The date for the collapse of the Unified Health System has already been set: 2018”, said the then leader of the party in the Senate, Humberto Costa (PT-PE), in the session that definitively approved the proposal.

Treasury wants floors to be valid again only from 2024

In 2023, the new fiscal framework – which allows real expenditure growth equivalent to 70% of the increase in revenue, limited to 2.5% – reestablished the constitutional floors prior to the spending ceiling rule.

But, in the midst of a primary deficit and with an ambitious goal of balancing public accounts by next year, the government is now trying to circumvent the obligation.

The first victory in this endeavor was obtained on Monday (9), when the technical unit of the Federal Audit Court (TCU) indicated that the floors only need to be met from 2024 onwards. The opinion, delivered in response to a consultation forwarded by Haddad, still needs to be endorsed by the plenary, but, if confirmed, it will represent a relief of around R$20 billion for the government in 2023.

Although they were approved this year, the rules established by the new fiscal framework are valid from the 2024 Budget onwards. Despite this, behind-the-scenes information indicates that the TCU was not willing to exempt the government from complying with the floors.

Faced with the risk of breaching the fiscal rule, the leader of the PT in the Chamber of Deputies, Zeca Dirceu (PT-PR), presented a proposed amendment that allows the government to breach the requirement to pay the health minimum in 2023. The provision was included in a bill that authorizes compensation from the Union for states and municipalities due to the reduction in ICMS on fuels, which was in force between June and December 2022. The text was approved in the Senate on Wednesday (4) and now goes to Lula for sanction.

Even so, seeking greater dialogue with TCU minister Augusto Nardes, rapporteur of the opinion for the rule’s non-enforceability in 2023, last Thursday (5) several state ministers attended an event coordinated by Nardes at the body’s headquarters. In addition to Haddad, Rui Costa (Civil House), Jorge Messias (Attorney General of the Union), Vinícius Carvalho (Comptroller General of the Union), Esther Dweck (Management and Innovation) and Marina Silva (Environment) were present.

According to the newspaper “Valor Econômico”, the meeting was attended by the president of the court of accounts, Bruno Dantas, who is close to Lula.

Government wants to change calculation of the constitutional health floor

The possibility of breaching the constitutional floors for health and education in 2023, however, would only represent a temporary relief for the government, which still wants to limit expenses in both areas for the coming years.

On another front, Planalto is studying a change in the calculation of the RCL, with the removal of extraordinary revenue from concessions, agreements and tax transactions that are not recurring in collection. As the variable is in the equation of the constitutional minimum for health, the modification would reduce the volume of mandatory resources in the area.

As stated by the Ministry of Finance to People’s Gazetteis being studied, in the so-called “New Cycle of Federative Cooperation”, a set of measures launched by the National Treasury in July that “aims to reformulate and revitalize the Brazilian federative pact and strengthen the relationship between the Union, states and municipalities”.

The ministry informed, however, that this moment of discussion is still investigating “possible impacts of non-compliance”. “The possibility of establishing a transition period is also under analysis to allow all entities to adapt,” declared the Treasury.

Economists defend revision of constitutional floors

Public accounts analysts interviewed by Gazette are in favor of a review of the rule on health and education spending floors. For Alessandra Ribeiro, from Tendências Consultoria, the measure could help the government balance the primary result in conjunction with initiatives that seek to increase revenue.

“The big problem is that we no longer have fat to burn on discretionary expenses and cutting mandatory expenses seems really difficult,” he explains. “But you can reduce the rate of discharge,” she says. She emphasizes that the most important thing is not the amount spent in these areas, but the quality of the expenditure.

Tiago Sbardelotto, from XP Investimentos, highlights that the floor rule should increase spending precisely due to the Treasury’s search for more sources of revenue. “If revenue as a whole grows more than 2.5%, which is the limit imposed by the new fiscal rule, these expenses will put pressure on others, reducing the space for discretionary spending within the new ceiling”, he explains.

For him, a viable idea would be to use the limits of the tax regime to limit the adjustment in expenses with both areas – that is, establish a 70% increase in revenue, with minimum limits of 0.6% and a maximum of 2.0%. 5% real growth.

“It is also important to re-discuss these floors structurally, because we have a population that is aging and, therefore, will demand more spending on health and probably less on education”, he assesses. “Managers should be given more freedom to allocate values ​​according to the needs of the population. But for now, in the short term, I think it’s worth just re-discussing these minimums.”