Including Fundeb in the framework reduces fiscal space in the medium term, says Treasury Secretary – 05/22/2023 – Market

After the noise surrounding the extra slack generated by the new fiscal framework report, National Treasury Secretary Rogério Ceron said, without presenting figures, that the changes will actually lead to a greater tightening of the Budget available until 2026 or 2027.

According to him, one of the limiting factors is the inclusion of transfers from the Union to Fundeb (Fund for the Maintenance and Development of Basic Education) under the expenditure limit, which should reduce the space for other expenditures in the medium and long term.

The secretary’s statement comes days after market agents pointed out that the opinion of the rapporteur, deputy Cláudio Cajado (PP-BA), could increase the spending limit by up to R$ 82 billion in 2024, as shown by the Sheet. Both the government and the rapporteur disagree with the bill.

“The rapporteur made important adjustments from a methodological point of view, removing revenue that is not as recurring [da base de cálculo do limite], such as installments, etc., and this in the medium and long term generates a tighter regulation. It tends to generate lower percentages of expenditure, not higher percentages. And people focus on what will happen in 2024”, Ceron said this Monday (22), in an interview with journalists about the bimonthly review of the Budget.

“He [Cajado] it also placed some exceptions that had been forwarded in the original project into the ceiling. Fundeb has an important effect of occupying budgetary space on the ceiling,” he said.

According to the secretary, although the opinion provided a gain of R$ 10 billion to R$ 20 billion in 2024, the net balance of changes in the medium term is “negative”. However, he did not present the numbers that would indicate this future loss, under the justification that “it depends on the simulation scenario”.

The inclusion of Fundeb in the framework is one of the most controversial points between parliamentarians and sectors of the government itself, who have been looking for Cajado to ask for the reversal. In the original proposal of the Ministry of Finance, Fundeb’s expenses were outside the expenditure limit, just as it is today in the expenditure ceiling —current fiscal rule, which limits the increase of expenses to the variation in inflation.

In Congress, the pressure is so great that party leaders already take for granted the return to the original text, which keeps Fundeb outside any limitations. The assessment is that spending on education is an “investment”.

In an attempt to reduce resistance, the rapporteur even included a device in the opinion that allows incorporating into the expenditure limit the amount equivalent to the increase in the Fundeb complementation percentage —a constitutional amendment of 2020 authorized the increase from 10% to 23% by 2026.

Even so, Ceron stated that the rate differential is not the only growth factor for Fundeb, which has a dynamic linked to revenues and may end up expanding at a faster pace than the general ceiling, compressing other areas.

“As much as I say that the rate differential has been reincorporated, but that’s not all. It has a dynamic with revenue that occupies fiscal space, and therefore reduces. [Esse efeito é] Even greater than these amounts that are being discussed for 2024”, said the secretary.

According to him, the restrictions imposed by the opinion would be more relevant than Cajado’s option of setting, for 2024, the real growth of the expenditure limit at the ceiling of 2.5% allowed by the rule —a change that generated noise, as the expectation of economists outside the government was of a smaller advance.

According to the original proposal, the expenditure limit could rise, above inflation, the equivalent of 70% of the real rise in revenues, respecting the range of 0.6% to 2.5%.

The government had an estimate that the increase in 2024 would be around 2.3%, but, according to the Secretary of the Treasury, the changes made by the rapporteur would bring that rate down by about 1 percentage point. Setting 2.5% would be a way to compensate for this change. “That would be somewhere around R$10 billion to R$20 billion,” he said.

This effect, however, would be less important than other changes that take away fiscal space from the government, according to the secretary.