Understand the new tax rule under discussion in Congress

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Proposal provides goals to balance public accounts. Text sent by the Chamber was approved, with changes, this Wednesday (21) by the Senate and will have to go through a new vote by the deputies. The new fiscal rule creates targets with the aim of balancing public accounts. If approved by Congress, the mechanism will replace the current spending cap. The text under discussion in Parliament authorizes the increase in expenses — above inflation — and determines that the growth in expenses is conditional on the increase in revenue. In practice, if the government meets the target, has a satisfactory collection, it will be able to invest more resources in infrastructure or social programs. When the result is much lower than expected, punishments will be applied. One of the penalties provided for prohibits the creation of mandatory expenses, such as new allowances, tax benefits and positions. The proposal was approved in May by the Chamber of Deputies. This Thursday (21), it was also approved by the Senate, but has undergone changes and will need a new vote by the deputies. Below are questions and answers about the proposal and the changes made so far in Congress: Why was the framework created? Why is calculating inflation important? What did the text approved by the Chamber predict? What did the Senate change? Will there be cost cuts? Why was the framework created? The fiscal rule currently in effect is the spending cap, which limits expenditure growth to the previous year’s inflation. Since its creation in 2016, the ceiling has been constantly changed — 5 times in 6 years — precisely to accommodate increased expenses. The standard is classified as very strict. Last year, for example, President Luiz Inácio Lula da Silva (PT) negotiated with Congress to increase spending to fulfill campaign promises, such as the new value of Bolsa Família and the increase in the minimum wage. The fiscal framework was created so that the government has more investment power without compromising public accounts. Back to start. Why is calculating inflation important? The new rule predicts that expenses will have real growth (ie, above inflation). So, the higher the inflation, the greater the pace of growth in expenses. The margin is 0.6% to 2.5% of real growth per year, but the growth in expenses will not be able to exceed 70% of the growth in revenues. Back to start. What did the text approved by the Chamber predict? Chamber approves basic text of the fiscal framework According to the text approved by the Chamber, the inflation period considered to correct federal expenses would be the 12 months until June (July to June). The proposal endorsed by the deputies opened, however, the possibility of the government to increase expenses if the inflation recorded at the end of the year was higher than that considered at the time of budget preparation. In this case, the government would need congressional authorization to increase spending. Back to start. What did the Senate change? Senate approves base text of the new federal public spending control rule The government will be able to predict the amount of expenses in the 2024 Budget proposal already considering the projection of inflation until the end of the year. These expenses, however, will be subject to congressional approval. Senators excluded from the limitations of the new fiscal regime: the Constitutional Fund of the Federal District, intended for investment in security, health and education in the DF; the Basic Education Maintenance and Development Fund (Fundeb), the main source of funding for basic education; and spending on science and technology in general. Back to start. Will there be cost cuts? In the first version sent to Congress, the federal government proposed considering the inflation calculated from January to June and also the inflation estimate for the period from July to December — a point that was changed by the Chamber and approved by the Senate. As inflation until June should be lower than that registered until the end of the year, the Ministry of Planning estimated that the government would need to cut up to R$ 40 billion in expenses in the Budget proposal for 2024 (which should be sent by the government to Congress until August 31). Now, with the possibility of including expenses subject to approval of the credit by Congress, the government would not need to cut expenses when presenting the Budget. It would depend, however, on approval from the Legislature to release these resources next year. Back to start.

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