Pentada de Lula opens doors for the return of creative accounting

The National Congress must decide by the end of this month whether to maintain or overturn a stroke made by President Luiz Inácio Lula da Silva (PT) that paves the way for so-called creative accounting, through which public spending can no longer be calculated in order to meet the target tax is complied with.

The device was used during the administration of Dilma Rousseff (PT), allowing the expansion of expenses with the Growth Acceleration Program (PAC).

Precisely to prevent this type of maneuver, an article in the Complementary Law Project (PLP) 93/2023, which establishes the new fiscal framework, prevented any primary expenses from being excluded from the calculation of the primary result target in the Budget Guidelines Law (LDO ).

Approved by the majority of the 513 deputies and 81 senators of the National Congress, the device was vetoed by the head of the Executive when sanctioning the text, converted on August 31 into Complementary Law 200/2023.

In a message to the president of the Senate and Congress, Rodrigo Pacheco (PSD-MG), Lula stated that the legislative proposal goes against the public interest, since the LDO would be the “competent diploma” to establish and manage fiscal and which, therefore, must contain the express authorization of exceptional measures such as the exclusion of expenses from the target calculation.

He highlighted, as an example, the forecast of operations to match court-ordered accounts, which were used in the 2023 Budget, highlighting that this type of transaction can be advantageous for the taxpayer and for the Union.

“Therefore, sanctioning the device would make carrying out such operations unfeasible, reducing economic efficiency in fiscal management”, says an excerpt from the veto message signed by the president.

When asked about the measure, the Ministers of Finance, Fernando Haddad, and Planning and Budget, Simone Tebet, reinforced their speech.

“The LDO has a device that has been around since 2023 that allows the collection of precatório accounts, and we didn’t want to take that away from the LDO because it gives flexibility when you have a meeting of accounts to do”, said Haddad in an interview press conference on the 1st.

“It has no other intention than this: to continue allowing accounts to match when you are at both ends of a credit and debit relationship”, he added.

The minister recalled that the expedient was used in 2022, the last year of the government of Jair Bolsonaro (PL), when the Union and the city of São Paulo signed an agreement to transfer Campo de Marte Airport.

The operation involved a meeting of accounts, with the closing of a debt of around R$24 billion between the municipality and the Union in exchange for the amount of compensation owed by the federal government for the use of the area. The amount was recorded as revenue for the central government, which contributed to the first primary surplus in nine years.

“If the framework had been clear: ‘we will not accept any primary expenditure computed outside the primary target, with the exception of the meeting of court orders’, we would not be vetoing this device”, added the Minister of Planning in the same press conference.

The veto to the device, however, allows new exceptions to the calculation of the primary result to be discussed in the LDO every year – and not just operations with court orders.

Budget guidelines laws always need to be reviewed by Congress, where the government has been trying to consolidate a majority base to approve agendas of its interest.

The president of the Chamber of Deputies, Arthur Lira (PP-AL), has already signaled that he supports maintaining the original text approved by parliamentarians. “The veto has a good chance of being overturned in the National Congress”, said Lira, also on the 1st, during participation in an event promoted by XP in São Paulo.

“Brazil needs to continue walking on the path of fiscal responsibility, looking at social issues”, added the deputy.

The partial veto message to PLP 93/2023 was sent to Congress on August 31st and from September 30th the agenda will be blocked if it is not analyzed.

Incredulous with goal achievement, market sees creative accounting risk

Even before the veto, economist Marcos Mendes, an associate researcher at Insper, was already warning of the possibility of the Lula government using accounting creativity in order to overcome the challenges in achieving the goal of a neutral primary result in 2024.

For him, the deficit should not be closed next year, mainly due to the pressure to increase spending. He also remembers that failure to meet the fiscal target no longer implies a criminal offense and considers that expenditure control mechanisms do not resolve the issue.

“Here comes another possibility that I think is very likely, to start using creative accounting, to start finding ways to close the accounts by force. There are strong signs of this in the scenario”, said the economist in an interview with the newspaper “O Estado de S.Paulo”, at the end of August.

Warren Rena’s chief economist, Felipe Salto, considers the government’s chances of risking a new attempt at creative accounting to be low, but highlights the need for attention.

“The risks of accounting discounts are on the radar, but we see them as low today, despite the presidential veto on the innovation that the framework project promoted in the LRF [Lei de Responsabilidade Fiscal] to block these possibilities. New movements in this matter will have to be monitored closely”, he says.

In a report to clients, the economist highlighted the negative signal that the veto sends to the market. “The so-called creative accounting has left many problems with public accounts and the economy in recent times, and this device would act as a kind of vaccine against new attempts”, wrote the economist. “By withdrawing it, the government sends a bad signal in this regard.”

The median expectations of financial market analysts are for a primary deficit of 0.71% in 2024, as shown in the latest edition of the Focus bulletin, released by the Central Bank last Monday (11).