Lula challenges Congress for control of funds in election year

Willing not to give up Executive control over the rate of release of Union funds, preserve bargaining power in Congress and influence in this election year, President Luiz Inácio Lula da Silva (PT) sanctioned the Budget Guidelines Law (LDO ) of 2024 with a controversial veto to annul the payment schedule for individual and mandatory amendments. While opposition deputies and senators and even government members are working to overturn this government decision in February, right after the Legislative recess returns, Lula is trying to open spaces for negotiation with parliamentarians, concerned about helping the PT and its allies in the October election.

In addition to the increase in tensions in the relationship between the powers, what is behind the president’s confrontation of Congress is the desire to combine influence over the campaigns of mayors and councilors with the fulfillment of the bold zero fiscal target for the year, confirmed in its sanction from LDO.

“A giant adjustment to eliminate the gap of 1.3% of the Gross Domestic Product (GDP), without containing, reviewing and qualifying expenses, will be incomplete and insufficient”, warned deputy Pedro Paulo Carvalho Teixeira (PSD-RJ).

Rapporteur of the project to tax funds abroad, the parliamentarian doubts that the zero deficit target will be met without new measures, including spending cuts. He says he believes that, in March, in the first bimonthly assessment of the Budget, with the slowdown in the economy and little time to reap the effects of the pro-revenue measures approved by Congress in 2023 and thus comply with tax legislation, the Union will hardly escape the tough contingency of R$53 billion. “Will the government be willing to put the brakes on it? Will new measures come? Will the target be revised?” he asks.

Government counts on the STF to reverse defeats in Congress

With fragile support in the Senate and uncertain support in the Chamber, the government counts as the ultimate solution on the support of the Federal Supreme Court (STF), where it holds a significant majority of appointed ministers, the largest since the government of Fernando Henrique Cardoso (PSDB). This advantage could be crucial in issues such as the likely overturning of the veto on the calendar of imposing amendments and the provisional measure (MP) that reinstates payrolls for the 17 economic sectors with the most employees, contrary to two joint votes by the Chamber and the Senate.

Lula is in a hurry, as he knows that 2024 is decisive for his political plans. Polls from December 2023 indicate his popularity is below the levels of his previous two terms, in addition to a deep split in the electorate. Lula clearly indicates his intention to lead negotiations with Congress and to actively participate in municipal elections, to expand his base of support, show strength and even prepare the ground for the 2026 presidential race. Due to the calendar, agreements around Funds need to be finalized this semester.

The fact is that, at the end of the first quarter, between the release of the federal revenue report in March and the sending of the 2025 Budget bill in April, Lula will have to decide on blocking federal spending and will review whether the target of balance in public accounts for the year. If you follow the recommendations of the Minister of Finance, Fernando Haddad, 2024 will be the year of fiscal control for this mandate. But, if it gives in to pressure from the PT and allies, the country could go into much more debt to invest in electoral projects and win city halls for the PT.

PL and PT will have the largest shares of the electoral fund of R$ 4.9 billion

In a sign contrary to fiscal rigidity and in unusual harmony with Congress, the government confirmed in the LDO the amount allocated to the electoral fund, R$4.9 billion, more than double (145%) the amount from the last municipal election in 2020 (R$2 billion), exceeding the amount proposed by the government by R$4 billion. To finance this record expansion, deputies and senators agreed to cut amendments requiring mandatory transfers from state benches from R$12.5 billion to R$8.5 billion, a change criticized by the president of the Senate, Rodrigo Pacheco (PSD-MG), but which was easily sanctioned.

According to the results of the last general election, the PL and the PT-PCdoB-PV Federation will have the largest shares of the electoral fund, proportional to the number of deputies they elected in 2022, being 99 (19%) and 80 (15.5 %), respectively, out of a total of 513. These antagonistic parties are also those with the greatest aspirations for 2024. The PT is trying to recover the ground lost in 2020, while the PL, with former president Jair Bolsonaro as its main electoral leader , plans to elect at least a thousand mayors, surpassing the 349 municipalities won in 2020.

In addition to the resources from the electoral fund, the opposition and most of the government supporters are counting on the unprecedented payment schedule for amendments, included by the LDO rapporteur, deputy Danilo Forte (União-CE). The article establishes that the amendments that the government is obliged to pay must be reserved by June 30th. Forte believes in overturning the veto that the government made under the allegation of “rigidity in the management of public finances”.

Representative Luizinho Teixeira (PP-RJ), leader of the PP in the PP Chamber, a party that is part of the Esplanada dos Ministérios, believes that the veto on this dynamic will be overturned. Representative Carlos Zarattini (PT-SP) argues that the prior programming of the allocation of funds violates the Constitution and the Fiscal Responsibility Law (LRF).

The same occurred in another section of the LDO vetoed by Lula, which determined that non-mandatory amendments focused on health and social assistance should be paid by July. “That’s why we are foreseeing the possibility of reviewing these vetoes that the government itself did not take precautions for. It certainly did not pass the scrutiny of the ministers who participated in the debate”, argues Danilo Forte.

Government deputy Elvino Bohn Gass (PT-RJ) insists on maintaining the veto. “We had the debate and now we will face it democratically in the new year,” he told SBT.

In other words, if Lula’s veto is overturned and the payment schedule maintained, in theory, Centrão and PL will have a better chance in the municipal elections. Without the calendar, Lula can restrict funding from opposing parties in the election year.

Payroll repayment and vetoes to the LDO will have parallel negotiations

The 34 vetoes to the LDO did not reach the target of zero fiscal deficit for this year, which prevents the government from spending more than it collects. In any case, the Growth Acceleration Program (PAC) was preserved with a cut limit of up to R$5 billion. In the end, the Union’s accounts will be considered fulfilled if the annual result varies between a deficit of R$ 28.75 billion and a surplus of the same value, corresponding to 0.25% of GDP, more or less, according to the new fiscal framework.

The discomfort caused by the suspension of the calendar of amendments through a veto in the LDO was added to another that the government left in Congress, after issuing MP to reinstate the payroll of 17 sectors of the economy. For senator Efraim Filho (União Brasil-PB), author of the project that maintained the payroll tax exemption until 2027, the government did not show any sign of willingness to dialogue.

In an interview with Jovem Pan News, he recalled that Planalto leaders let their proposal process for 10 months without an alternative being presented and even voting in favor. “The veto was overcome. Even so, the government decided to impose its agenda by provisional measure, after failing to sustain it in plenary,” he said.

The senator informed that the leaders will meet next week with the president of Congress, senator Rodrigo Pacheco (PSD-MG), to discuss a possible and immediate return of the MP or plan for her overthrow in February, after the parliamentary recess. “Pacheco wants to share the decision with the parties. The government, in turn, remains isolated on the re-encumbrance agenda, criticized by companies and workers,” he said.

In the case of the LDO, as it is a budgetary process, he thinks that there will not be the same cohesion to react against the government, as in the case of the exemption of economic sectors. A CNNdeputy Any Ortiz (Cidadania-RS), rapporteur in the Chamber of the project to alleviate the tax burden on the payroll, considered the government’s reaction an “affront to Congress” and lamented the absence of an alternative or dialogue.