Lula vetoes parts of the fiscal framework on expenses and fiscal responsibility

Two sections of the new fiscal framework were vetoed by President Luiz Inácio Lula da Silva (PT) in the sanction of the project approved by Congress, published this Thursday (31) in the Official Gazette. One of them gives greater flexibility for the government to block investments , while the other will allow for the exclusion of primary result expenditures in the Budgetary Guidelines Law (LDO).

In the justifications elaborated with the Ministries of Finance and Planning and Budget, Lula argues that the propositions would have a “potential impact on essential expenses of the Union” and that they would go against the “public interest” (see in full).

Vetoes, although they do not change the immediate application of laws, can be overturned by Congress.

In the first veto, the legislation approved by the deputies and senators provided that the investment expenses of the federal Executive Branch could be reduced “by up to the same proportion as the limitation on the set of other discretionary expenses”. This item is related to the Fiscal Responsibility Law, which deals with the limitation and blocking of the reserve of resources in case of non-compliance with goals.

Lula vetoed the passage, stating that the legislation “increases the rigidity of budget management processes, with a potential impact on the Union’s essential expenses”. In summary, it will allow the government to make greater cuts in investments that it deems necessary.

The second veto deals with the LDO and has already been used in PT governments in the past to justify meeting the fiscal target even with increased spending on the Growth Acceleration Program (PAC). The legislation establishes that “the Budgetary Guidelines Law cannot provide for the exclusion of any primary expenses from the calculation of the primary result target of the fiscal and social security budgets”.

Lula justified the veto by stating that the LDO has the attribution of “establishing and managing fiscal result targets”. He cites, in particular, the article of the Constitution that deals with operations with precatories that would be affected by the legislation.

“These transactions can be advantageous for the taxpayer and for the Union, resulting, however, in a primary impact, either on the revenue or expense side”, he said, adding that “the sanction of the device would make it impossible to carry out such operations, reducing efficiency economics in fiscal management”.

What the legislation passed by Congress says

PLP 93/2023 limits annual growth in expenses to 70% of the increase in revenue. The text approved in the Chamber was changed by the Federal Senate, and returned to the Chamber, which included triggers for adjusting expenses and sanctions to the government, in case the primary result targets are not met.

In addition, in an agreement struck with the leaders of the parties and government technicians, the deputies agreed to keep outside the new spending ceiling the expenses with the Constitutional Fund of the Federal District and the Fund for the Maintenance and Development of Basic Education and the Valorization of Education Professionals (Fundeb).

After the Senate approved the changes, federal deputies analyzed the highlights presented by the parties in an attempt to include other amendments to the text.

One of the amendments left spending on science, technology and innovation out of bounds. And another amendment voted separately created the Fiscal Modernization Committee to improve the governance of federal finances and make the planning, execution and control stages of the budget cycle more transparent and efficient for the financing of public policies.

The highlights presented were withdrawn or rejected by the Plenary.