House of Representatives approves new tax rule

The Chamber of Deputies approved, on Tuesday night (23), the new fiscal framework. There were 372 votes in favor, 108 against and 1 abstention. The parliamentarians approved the substitute presented by the proposal’s rapporteur, Deputy Cláudio Cajado (PP-BA). The text now goes to the Senate for analysis. As it is a complementary bill, the new fiscal rule needed at least 257 votes to be approved. After approving the text, the deputies began to analyze the amendments to the measure.

The framework, which will replace the spending cap, was only voted after understanding between party leaders. Earlier, the presidents of the Chamber, Arthur Lira (PP-AL), and of the Senate, Rodrigo Pacheco (PSD-MG), closed an agreement with the government and representatives of the productive sector to vote on the economic guidelines.

On the 15th, Cajado presented the proposal report after agreement with party leaders. The text of the new tax rule did not go through the House committees, as the federal deputies approved the urgent request for processing on the last 17th. With that, the text will go straight to the plenary.

The rapporteur included triggers for the adjustment of expenses and sanctions for the government, in case the primary result targets are not met. However, the real increase in the minimum wage and spending on the Bolsa Família program were shielded from these mechanisms. “I want to make it clear that the substitute greatly improved the original text. All exceptionalities were the result of much discussion”, defended Cajado.

Opposition deputies protested against the lack of time for analyzing the project. During the debates in the plenary, a request was presented and approved to end the discussions.

What was defined in the fiscal framework

A point of tension in relation to the fiscal framework was the possibility of increasing government spending from 2024 by 2.5% above inflation. According to the original proposal sent by the government to Congress, expenses could grow annually up to the equivalent of 70% of the increase in revenues, however respecting the maximum limit of 2.5% of real increase. In the event of low growth or a drop in revenue, there would be a floor of 0.6% growth in expenses above inflation.

The substitute for Cajado, however, made an exception for next year, setting the increase in expenses at the ceiling, that is, at 2.5%, regardless of the evolution in revenue.

“The point that demanded more discussion in relation to the expense at 2.5% [em 2024]. Let’s make a new text. A mix between the original text is a possibility. The original text predicted a growth of 1.12%. We’re going to take the difference on top of what’s in growth and we’re going to put up to 2.5%”, said Cajado before the vote.

“It will be able to use more than grow, between 2023 and 2024, up to 70% [da alta da Receita], within the limit of 2.5%. It was a middle ground to undo that misunderstanding, “she added.

The new substitute, presented tonight, incorporates the expenditure growth rule into the permanent text and provides that real expenditure growth has a minimum limit of 0.6% per year, and a maximum limit of 2.5% per year.

In addition, a “second tier” of limits is added to the “sustainable fiscal regime”, provided the first is met (0.6% to 2.5%) with real expenditure growth being limited to: 70% of real variation revenue, if the calculated primary result is equal to or above the lower limit of the primary surplus target; or 50% of the actual revenue variation, if the calculated primary result is below the lower limit of the primary surplus target.

In either case, meeting the target must consider the tolerance interval of 0.25 percentage points of GDP in the year. “Thus, with the improvements that we believe we have promoted in the PLP in our Substitutive, we consider that we have a new framework of long-term fiscal sustainability, which can induce the stabilization of the public debt, without neglecting the need for the Public Power to expand its services, and to carry out works and investments, for the benefit of the population”, wrote Cajado in the new opinion.

In addition, the Fund for the Maintenance and Development of Basic Education and the Valuation of Education Professionals (Fundeb) was also kept within the rule’s expense limit. The inclusion of the fund related to education in the framework was the target of protests by parliamentarians from the left, even though they declared their vote in favor of the project. In the same way as Fundeb, the resources destined to pay the nursing floor were also incorporated into the fiscal rule.

Impasse over Constitutional Fund of the DF

Deputies from the Federal District defended the current composition of the Constitutional Fund of the DF, which is used to pay for essential services and represents 40% of the budget. The report sets a maximum limit of 2.5% on the annual growth of federal government transfers to funds, such as the DF.

DF representatives believe that the fund will be harmed by this rule. Cajado kept the fund within the rule, despite pressure from DF parliamentarians. “The changes are text adjustments that do not change the original text of Deputy Cajado”, highlighted the president of the Chamber.

“The Constitutional Fund of the Federal District is legal, it is fair, it will have the correction that all the others will have”, said Lira before the vote. For him, there is confusion between the new fiscal framework and the spending ceiling. “The new milestone is not the spending ceiling, many people still confuse it, and that frightens”, he said.