STF authorizes government to regularize stock of court orders – 11/30/2023 – Market

By 9 votes to 1, the STF (Supreme Federal Court) decided to authorize the Luiz Inácio Lula da Silva (PT) government to regularize the stock of judicial sentences without violating fiscal rules until the year 2026.

The trial took place in the virtual plenary, and the ministers finished voting on Thursday night (30).

Rapporteur of the action, Minister Luiz Fux voted to authorize the regularization. He was accompanied by ministers Luís Roberto Barroso, Edson Fachin, Cármen Lúcia, Dias Toffoli, Alexandre de Moraes, Gilmar Mendes, Cristiano Zanin and Nunes Marques.

Minister André Mendonça, who had requested a review (more time for analysis) and returned the case for judgment on Wednesday (29), was the only one to disagree.

In an extraordinary session in the virtual plenary, Fux declared the unconstitutionality of the ceiling for the payment of court orders, created in 2021 under the management of Jair Bolsonaro (PL), and accepted the request from the AGU (Attorney General of the Union) to allow the opening of an extraordinary credit to pay off the liability.

The accumulated stock between 2022 and the forecast for 2024 is estimated by the current economic team at R$95 billion. According to Fux’s vote, the amount could be paid later this year, outside the spending limit and without affecting the fiscal target.

On the other hand, the reporting minister did not accept the government’s most controversial request: classifying part of these sentences as financial expenses, which would leave them outside the limits of the new fiscal framework and the primary result target also in the future.

The measure, anticipated by Sheet in August, it was proposed by the Ministry of Finance as a solution to prevent the future trend of these expenses from generating pressure on fiscal rules in the coming years. The criterion, however, was criticized by economists and deviates from international standards followed by the Central Bank, the body responsible for official public finance statistics.

In the winning vote, the rapporteur proposed an alternative: authorizing the government to open extraordinary credit to pay not only the amounts held up between 2022 and 2024, but also the amounts that would be accumulated in 2025 and 2026, the last years of the court-ordered ceiling’s validity.

In practice, the measure allows the teams of ministers Fernando Haddad (Finance) and Simone Tebet (Planning) to maintain the current projections for the Budget until the end of the term, paying excess amounts from court sentences without running into tax rules. The full amount of these debts would only need to be accommodated under the limits from 2027 onwards.

According to government interlocutors, acceptance of this alternative was tested with members of the economic team in recent weeks, without major objections. In his vote, Fux argues that the measure is necessary so that “the credibility of the tax regime can be maintained”.

On Tuesday (28), the deputy secretary of the National Treasury, Viviane Varga, said that the body had already mapped out “the entire set of necessary actions” to operationalize the payment of court orders, if the STF’s decision was in favor of regularization.

According to her, Executive technicians held meetings with representatives of the courts to ensure the quick collection of the amounts owed. “Once decided, we are planned and organized. We are waiting to be able to do it in a very agile way,” she said. “The idea is to start in 2024 without this liability. It is important to turn this page.”

Upon the return from the courts, which need to inform the details of each action, the Treasury will know the exact amount to be paid. But the expectation is that the total amount will be between R$90 billion and R$95 billion, said Varga.

Even with the exception to the rules granted by the STF, the payment will generate an increase in Brazilian public debt. The movement, however, was already expected and even defended by economists, for whom the country was simply keeping an uncontroversial commitment out of the statistics. Court orders are issued after the Union has been condemned in a final sentence, with no possibility of appeal.

UNDERSTAND THE IMBROGLIO OF PRECATORIES

What did the PEC of Precatório do?

Approved at the end of 2021, the proposal was an initiative by the Bolsonaro administration to create an annual limit for the payment of court orders (state debts recognized by the courts). The excess amount is postponed to the following years, forming a kind of debt queue — which grows as new amounts appear each year.

What motivated the proposal at the time?

Bolsonaro planned to increase social spending with Auxílio Brasil in the 2022 election year, promising a minimum of R$400 per family. However, he faced a significant obstacle with an unexpected increase of R$35 billion in judicial debts, which would take space from the Budget (at the time, still under the spending cap). Therefore, the strategy of adding a limit for them to the Constitution emerged.

What would happen after the deadline, in 2027?

The constitutional amendment says that the limit would be valid until the end of 2026. The successive postponement of judicial debts could generate a real snowball, according to an analysis carried out by the government itself. The National Treasury has already warned of the risk of a bomb exceeding R$250 billion in accumulated court orders to be paid by the Union in 2027.

What did the Lula government ask the STF?

The revocation of the limit for court orders created during the Bolsonaro government, proposing the payment of part of court sentences as financial expenses and without violating tax rules. The Lula government also requested authorization to settle liabilities of around R$95 billion, held up until now, through extraordinary credit (outside the Budget).

How did the STF vote?

By 9 votes to 1, the STF decided to authorize the Lula government to regularize the stock of court sentences without compromising fiscal rules until the year 2026. The trial took place in the virtual plenary, and the ministers finished voting on Thursday night (30). Rapporteur of the action, Minister Luiz Fux voted to authorize the regularization. He was accompanied by ministers Luís Roberto Barroso, Edson Fachin, Cármen Lúcia, Dias Toffoli, Alexandre de Moraes, Gilmar Mendes, Cristiano Zanin and Nunes Marques. Minister André Mendonça, who had requested a review (more time for analysis) and returned the case for judgment on Wednesday (29), was the only one to disagree.