LDO report circumvents fiscal framework and could avoid cutting R$30 billion in 2024, according to technicians

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Officially, the rapporteur, Danilo Forte, denies having accepted the government leadership’s suggestion, but included a provision with different wording and which, in practice, has the same effect. Despite denying having accepted the government’s suggestion to avoid a cut of around R$30 billion in expenses next year, deputy Danilo Forte (União-BA), rapporteur of the Budget Guidelines Law (LDO), included in his opinion a provision which, in practice, has the same effect. The provision included by Danilo makes a reference to the Fiscal Responsibility Law (LRF), which allows for reservations for the contingency of some specific expenses. According to the rule included in the LDO, any cost cuts are prohibited if they prevent, in the next year, the execution of government expenditure below the level of real growth (above inflation) of 0.6% per year – minimum limit provided for in the fiscal framework (new rule for controlling public expenditure). In other words, in practice, despite a different wording than the suggestion made by the government leader in Congress, Randolfe Rodrigues (Rede-AP), the device also limits the blocking of next year’s expenses to R$23 billion. The value is much lower than the amount calculated considering the rules of the new tax framework. According to calculations by the Budget and Financial Inspection Consultancy of the Chamber of Deputies, the maximum contingency could reach R$56.5 billion. With less need for blockades, it becomes more difficult for the government to achieve the zero fiscal deficit target — that is, a balance in public accounts, without negative or positive results. Disrespect for the LRF and the fiscal framework According to Budget analysts, the measure ignores both the LRF and the complementary law of the new fiscal framework. In the case of the LRF, even though legislation allows exceptions to the blockade, contingency is necessary when there is a risk of not meeting the target. Furthermore, the Fiscal Responsibility Law allows blocking exceptions to specific expenses – for example, for science, technology and innovation – not exceptions to a general rule, like the provision included by Danilo. The new fiscal framework establishes a limit of 25% for possible contingencies on discretionary (non-mandatory) expenses, such as investments and public sector funding. In other words, the legislation allows the manager to stop making contingencies (even if necessary to achieve the goal) that exceed 25% of the total discretionary ones. In this case, failure to meet the target does not constitute a government infraction. According to Chamber consultancy, this 25% limit will correspond to R$ 56.5 billion in 2024: “Adopting the total discretionary expenses of all Powers and autonomous bodies in the PLOA 2024 as a calculation basis, the maximum contingency for 2024 it would be R$56.5 billion”. By limiting the blockade to R$23 billion, the device renders the measure null and void and, in the opinion of technicians, violates a complementary law, which is superior to annual legislation, such as the LDO. Consultation with the TCU Forte’s allies say that he opted for this new wording as it “only refers” to the new fiscal framework. But to follow this understanding, the Ministry of Finance may need to consult the Federal Audit Court (TCU) to validate the interpretation of the new rule. According to technicians, the inclusion of the device in the LDO does not resolve the legality of a minor blockade in case of non-compliance with the target. Therefore, if next year the government needs, for example, to block R$40 billion to meet the fiscal target, but interprets that the maximum blockage is R$23 billion due to the LDO measure, this could lead to punishability of the Executive, in the assessment of these Budget analysts. For Randolfe Rodrigues, as soon as the LDO is sanctioned, it will be “necessary” to consult the TCU in search of the contingency limit value. According to the senator, Planalto felt supported by Danilo Forte’s report and does not intend to suggest changes. Although Randolfe’s amendment was not formally accepted, the alternative given by the rapporteur met, in practice, the government’s request – an assessment shared by members of the Ministry of Finance. The senator stated that, after presenting the text, he spoke with minister Fernando Haddad, who celebrated the measure. “The economic team celebrated because the opinion meets the spirit of coherence with the fiscal framework. We should not make any changes,” he declared. He said that the LDO will be voted on next Thursday (14), in a Congress session.

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