Quick approval of the fiscal framework in the Senate will have to face obstacles

The Complementary Law Project (PLP) 93/2023, which aims to establish a new fiscal framework for the country, is being analyzed by senators this week, after being approved by the Chamber of Deputies, on the night of last Tuesday (23) . However, even with the promise of the President of the Senate, Rodrigo Pacheco (PSD-MG), to conduct an agile procedure, the proposal faces resistance – including among the government supporters themselves – in relation to forwarding the fiscal framework without discussions in the committees and amendments, and voted directly in plenary.

Pacheco’s idea would be to conduct the text through an accelerated procedure, with the aim of enabling President Luiz Inácio Lula da Silva (PT) to sanction the change in June. After the meeting of the President of the Senate with the party leaders, last Thursday (25), the procedure was established, defended by the opposition, that the proposal should be submitted to at least one commission, preferably the one on Economic Affairs ( CAE), chaired by Vanderlan Cardoso (PSD-GO). Senator Omar Aziz (PSD-AM) is the most quoted to assume the role of rapporteur in the House.

In addition, the president of the Constitution and Justice Commission (CCJ), Davi Alcolumbre (União Brasil-AP), is also seeking to include his collegiate in the process of analyzing the proposal and has applied to report on it.

The difficulties for a rapid advance of the project reflect the desire of senators to make changes to the text proposed by the initial rapporteur, Deputy Claudio Cajado (PP-BA). While opposition members want to tighten the fiscal rule, some parliamentarians, including government allies, would like to expand the list of exceptions to spending control, including the Basic Education Maintenance and Development Fund (Fundeb) and federal transfers for funding the Federal District, for example. In addition, there are also those who seek to give the government more room for maneuver in 2024, as a way to compensate for any drops in revenue.

It is no coincidence that the leading senators of the government in Congress and the Senate, Randolfe Rodrigues (without party-AP) and Jaques Wagner (PT-BA), respectively, have made an effort until the last moment for the project to be sent directly to the plenary of the Senate, in the same urgency regime adopted in the Chamber. This is because, if approved without changes to the text, it would go directly to the presidential sanction. Otherwise, it would be necessary to go back to the analysis of the deputies, with a tendency to maintain what has already been established.

Senators warn of risk of uncontrolled public debt

Although the federal government’s discourse is that there will be no surprises and that the majority is guaranteed to speed up the approval, there is a fear that a climate of uncertainty and new opportunities for political negotiations will arise. The market, although it does not consider the Chamber’s proposal to be ideal, seeks greater predictability and has the expectation that the Senate will not create obstacles. Senator Oriovisto Guimarães (Podemos-PR) expects changes to be made in order to make the proposal more rigid and that this occurs through a prior agreement between the leaders of the Senate and the Chamber.

Senators Otto Alencar (PSD-BA) and Eduardo Braga (MDB-AM) are considered as possible options for project rapporteurs. Despite being part of the government’s base and defending the guarantee of resources for public policies, such as Bolsa Família and Minha Casa, Minha Vida, they share the opposition’s concern regarding the evolution of the public debt. Alencar noted that the fiscal framework seeks to reconcile revenues and expenses, allowing the government to invest up to R$ 200 billion in 2024 and maintain social programs. However, everything depends on raising revenues in 2023 and monitoring the progress of the gross debt of states, municipalities and the Union, which may result in higher financial costs.

According to a report by the Independent Fiscal Institution (IFI), linked to the Senate, the text of the framework approved by the Chamber brought improvements in relation to the initial project presented by the Executive, including the application of penalties for cases of non-compliance with the rule. However, IFI analysts point out that the new fiscal rule, although more flexible than the current regime, presents a complex design. The updated IFI projections indicate that gross debt in relation to Gross Domestic Product (GDP) will continue to grow in the coming years, rising from 73% to 93.6% by 2032. The government’s capacity to generate positive primary results in the coming years will be determinant for the debt trajectory.

Government has a solid majority to avoid surprises in the vote on the fiscal framework

Eduardo Galvão, coordinator of the MBA in Public Policy and Institutional Relations at Ibmec-DF, assesses, however, that the processing of the framework in the Senate tends to be even more favorable to the Lula government due to the solid base and the alignment of more than 90% in the votes , according to statistics. He highlights the possibility of the Senate president being able to schedule the vote before the next meeting of the Monetary Policy Committee (Copom), scheduled for June 21. “This would open space for a possible reduction in interest rates, which is one of Lula’s goals,” he said. In addition, Galvão observes that the president of the Central Bank (BC) has improved his relationship with the Minister of Finance, Fernando Haddad, which may also favor this possibility.

The only obstacle identified by Galvão for the government in the Senate refers to the desire to make the fiscal framework more flexible for constitutional funds that finance public security, education and health. According to him, so far, 11 senators have already positioned themselves against the continuation of this point.

The rapporteur in the Chamber, Cláudio Cajado (PP/BA), also expected a quick vote on the project in the Senate, without going through the thematic committees, directly in plenary. By Cajado’s calculations, this path would take three weeks, with the help of the next rapporteur, probably Omar Aziz, a faithful ally of the Lula government. He stated that the productive articulation between leaders, especially from Centrão, and Haddad’s openness to dialogue were essential for advances in the fiscal framework so far.

Cajado suggested a series of alterations to the government’s original project, but maintained the principle that expenditure growth should be lower than the evolution of Union revenue. PLP 93/2023 provides for the setting of limits for primary expenditure, which must be readjusted annually by the Extended National Consumer Price Index (IPCA) and by percentage on primary revenue growth. From 2024 to 2027, expenditures may grow by up to 70% of the actual change in revenue, if the target two years earlier has been met, or half of the actual change in revenue, if the target two years earlier has not been met.

This looser methodology than the current spending cap has provoked criticism from experts and the opposition. “The new fiscal framework already starts with a very high expense, allows for a large increase in expenses and does not control important expenses growth factors”, observes Marcos Mendes, a researcher at the Insper Institute.

Discussion of the framework is considered the “antechamber” for another structuring measure, the tax reform, whose path may determine the success or failure of the federal government’s investment plan in the coming years, conditioned to a continuous increase in revenues.