Senator confirms changes in fiscal framework, but maintains rule for inflation – 06/20/2023 – Market

Senator Omar Aziz (PSD-AM), rapporteur of the proposal for a new fiscal framework in the Federal Senate, confirmed that he will remove Fundeb (Fund for Maintenance and Development of Basic Education) and FCDF (Constitutional Fund of the Federal District) from the limit of expenses, but discarded alteration in the text approved in the Chamber of Deputies regarding the period of inflation to be used to mark out the expenditure ceiling in the Budget.

The decision was taken this Tuesday (20) after a meeting with the rapporteur for the text in the Chamber, deputy Cláudio Cajado (PP-BA), to align the changes.

Last week, the senator signaled that he was willing to adjust the text to avoid a budget cut in the 2024 Budget proposal – estimated by the government at up to R$ 40 billion.

The Chamber’s text changed the time frame for correction of the limit due to inflation to 12 months until June of the previous year, since the PLOA (Annual Budget Law proposal) is sent until August 31 of each year, and the parameters are closed still in July —when inflation data are only available up to June.

The purpose of the change was to remove the projection component, which would give the government an opportunity to overestimate inflation and, thus, be able to spend more in the following year.

“You estimate and let that estimate take shape in the budget piece without there being a possibility that, in the excess that is not calculated, it will be refunded, you create a fictitious Budget”, said Cajado

“The government has the possibility of presenting, in case there is a difference, an extraordinary credit supplementation project to be able to balance it. There is no damage. we see reason for changes,” he added.

According to Aziz, the “important thing is to be as quick as possible so as not to delay” the approval of the framework.

“It is not in the interest of the Senate to jeopardize this good progress that we are seeing in the economy, future interest rates falling a lot, Brazil’s credibility very strong internationally, growth coming,” he said.

“We hope that, with this new fiscal framework, credibility will come, it’s not pulling the rope one way, the other to see who will break, it always breaks in the population”, he continued.

Both rapporteurs signaled their intention to avoid a new tug of war between the two Houses.

“We are going to talk in the sense of not making a warhorse about this, we are going to see what the other changes are and eventually we can keep them or change them”, said Cajado.

Although he avoided “anticipating a complete compromise”, the deputy signaled that the Chamber may agree with the proposed changes in the Senate report.

“I’m going to do the same script that I did when I presented the report, I’m going to the college of leaders, to present the amendments and suggestions that I, as rapporteur, should do and to President Arthur Lira”, he said. “We understand the reasons why the Senate, even though it actually exists that there is no loss for the Constitutional Fund of the DF or for Fundeb, wants to make an exception, an issue that we have to respect, but here we are not going to make a warhorse regarding these issues.”

Aziz intends to approve the fiscal framework in the CAE (Economic Affairs Commission) of the Senate this Tuesday. The chairman of the committee, senator Vanderlan Cardoso (PSD-GO), already takes it for granted, however, that there will be a request for a view, which could delay the vote by one day.

The expectation in the House is to approve the text in plenary on Wednesday (21), when it is also expected to vote on the nomination of lawyer Cristiano Zanin for the STF (Federal Supreme Court).

With the changes, the text will return to the Chamber of Deputies. Even with an agreement, the vote could be postponed to July. In addition to the June festivities —which mobilize parliamentarians, especially from the Northeast region—, the President of the House, Arthur Lira (PP-AL), will be in Portugal next week.

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Remember the framework and its changes

What is the framework? Bill under discussion to regulate how federal expenses should grow over the years, replacing the current spending ceiling. According to the text, the increase in expenses will correspond to the inflationary correction plus a real increase of 0.6% to 2.5% each year, a percentage that grows within this range if there is an increase in revenues.

What changed in the framework in the approval in the House? The House reduced the list of exceptions to the spending cap originally proposed by the government. All investments in state-owned companies, transfers to states and municipalities to finance the nursing floor and the FCDF (Constitutional Fund of the Federal District) came under the general rule of Fundeb expenses.

In addition, the Chamber changed the period for verifying the inflation that influences expenses, from the 12 months ending in December of the previous year to the 12 months ending in June of the previous year (which may result in fewer expenses in 2024).

What is being discussed in the Senate? The proposal’s rapporteur in the Senate, Omar Aziz, plans to remove Fundeb and transfers to FCDF from the expenditure limit.