Lula’s vetoes to the LDO increase tension between Planalto and Congress

By sanctioning the 2024 Budget Guidelines Law (LDO), this Tuesday (2), with vetoes to provisions approved by Congress in the last days of 2023, President Luiz Inácio Lula da Silva (PT) introduced additional elements to a new institutional crisis that marks the turn of the year. His decision directly affects the establishment of an unprecedented payment schedule for individual and mandatory amendments by parliamentarians. It involves compulsory payments and could take away Lula’s bargaining power in votes of interest to him.

The LDO rapporteur, Danilo Forte (União-CE) said he is confident that Lula’s vetoes will be reversed by the Legislature. “I believe that the 2024 LDO brings together the feeling of the most diverse political leaders as it was widely debated in Parliament and, therefore, I am confident that it will be possible to reverse the aforementioned vetoes in order to preserve institutional, political and social advances and economic aspects present in the budget piece”, declared the LDO rapporteur, Danilo Forte, in a note.

Lula’s changes again challenge Congress, as they come shortly after the approval of a provisional measure (MP) that reestablishes the social security contribution on the payroll for the 17 economic sectors that employ the most. This MP was published one day after Congress approved a law extending the incentive until 2027 and just one week after parliamentarians overturned the presidential veto on the same project with a large majority. The expectation is that Lula and the presidents of the Chamber, deputy Arthur Lira (PP-AL), and of the Senate, Rodrigo Pacheco (PSD-MG), will discuss the impasses during the parliamentary recess.

In the order with the vetoes, which was published this Tuesday (2) in Official Diary of the Union, Lula justifies the vetoes by saying that the payment schedule for parliamentary amendments would negatively impact the government’s budgetary and financial execution, in addition to “violating the Constitution” and contradicting the Executive’s prerogative to “establish the financial disbursement schedule”. The LDO reported by deputy Danilo Forte included the schedule for the commitment of individual and bench amendments, reaching the sum of R$ 37.5 billion, not to mention the committee amendments, which are non-binding and stipulated at a further R$ 11.3 billion. .

The issue is important for parliamentarians because the Lula government used payment for amendments as a negotiating currency. Parliamentarians who voted in favor of government projects received, in return, faster payment for their amendments. Lula does not want to lose this power in an election year.

If Congress overturns vetoes, government can appeal to the STF

Analysts interviewed by People’s Gazette point out that a fiercer confrontation between the Legislative and Executive branches, to the point of paralyzing decision-making on national issues, seems inevitable. This could increase the risks for the country this year, but there are still no clear signs that the institutional crisis is unavoidable. “Congress will certainly overturn these vetoes by Lula and the chances of the government judicializing the issue are also good”, warned Leonardo Barreto, political scientist and director of the consultancy Vector.

Despite the positive outlook for economic activity and controlled inflation, the country faces challenges related to legal uncertainty and fiscal imbalance. The financial market’s expectation of economic growth for this year is half the 3% recorded in the previous year. The duel between Lula and Congress, especially around payroll exemptions, puts more pressure on the scenario.

The commitment to zero deficit in public accounts to stabilize the economy, maintained by Lula in the LDO, has already provoked public disagreements between the president and minister Fernando Haddad (Finance). The government is betting on increased revenue to comply with the rule and does not want to cut spending.

Among the points of tension caused by Lula in the LDO is the veto on the payment of amendments transferred from the Union to federated entities (fund to fund) in the areas of health and social assistance until June 30th. The justification this time was that this could impact the efficiency of the Administration. On the other hand, it could also impact this year’s municipal elections.

Although he sanctioned the part of the law that allows the contingency of only amendments presented by Congressional committees in the same proportion as the blocking of non-mandatory expenses, Lula vetoed the part that established that these committee amendments should correspond to at least 0.9% of the net current revenue (RCL) for 2022. In any case, the R$4.9 billion for the Electoral Fund was spared from Lula’s pen.

Government and Congress converge only on some economic issues

President Lula also vetoed the “patriotic amendment” by deputy Eduardo Bolsonaro (PL-SP) and supported by the opposition. It prohibited the Union from financing invasions of rural properties, sex change surgeries for children and adolescents, abortions outside of cases authorized by law, among other points. Both the government and the opposition know that the provisions of the Budget served to reinforce conflicting ideological positions between the majority of the Chamber and the Planalto, especially in the election year.

Arthur Wittenberg, professor of institutional relations and public policies at Ibmec-DF, assessed that the institutional tension between the Executive and Congress was an indisputable fact at the end of 2023. “Although the legislative year allowed significant progress on issues of interest to the Planalto – such as tax reform and the Provisional Measure for subsidies – these efforts are mainly limited to economic themes”, he noted.

For him, an immediate reaction from Pacheco was expected to the government’s effort to reinstate the payroll, as it was an issue on which legislators had already made decisions, while Planalto and the Ministry of Economy insisted on containing them. “The parliamentary recess can provide the opportunity for political conversations and a realignment of relations between the two powers, as Lula highlighted at the ministerial meeting on December 20th”, he bet.