The plenary of the Chamber of Deputies approved, on the night of this Tuesday (23), by 372 votes to 108, the basic text of the complementary bill that deals with the new tax framework (PLP 93/2023) – rule that replaces the spending cap.
Parliamentarians still need to analyze bench highlights with suggestions for changes to the voted text. So far, only one of the highlights has been voted on, authored by the PSOL-Rede Federation, which intended to remove from the text the chapter that dealt with prohibitions on spending imposed on the federal government in the event of non-compliance with the fiscal target (the so-called “triggers”).
See how each deputy voted in the basic text.
The substitute, authored by the rapporteur, Deputy Cláudio Cajado (PP-BA), brings changes in relation to the version distributed by the rapporteur last week. In the new text, there is no longer a device that guarantees the government a growth in public expenditure of 2.5% for 2024, discounting inflation.
The threshold would be the maximum of the spending evolution band provided for in the rule (ranging from 0.6% to 2.5%) and had been seen as a kind of “teaspoon” granted to the government to inflate the Budget for the year next.
Amidst criticism from parliamentarians and economic agents, Cajado brought a middle ground solution to the new text, seeking to contemplate a greater space for expenses in relation to what the regular rule of the fiscal mark provides, but in a smaller proportion than that indicated in the first replacement.
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The new version provides that, after the release of the second bimonthly assessment of primary revenues and expenditures in May 2024, if the verified revenue indicates that expectations have been exceeded, the government can generate supplementary credits at the rate of 70% of the difference in relation to what was carried out in the previous year beyond the established spending limit.
However, if at the end of the period it is verified that the projection of revenues has been frustrated, it will be necessary to deduct the amounts from the budget item for the following year and correct the calculation basis for the unrealized surplus.
The text, on the other hand, did not bring changes in relation to the exceptions to the rule that appeared in the first version of the substitute presented last week. Compared to the text sent by the government, expenses with capitalization of state-owned companies, transfers related to the nursing floor and transfers under the Fund for the Maintenance and Development of Elementary Education and the Valorization of Teaching (Fundeb) were included in the expenditure limit. .
Union expenses related to the organization and maintenance of the Federal District’s police and fire departments are also included in the account, in addition to any financial assistance to the subnational entity for the execution of public services, through its own fund.
The replacement for Cláudio Cajado, despite the changes, maintained the “backbone” of the rule forwarded by the government. The text maintains the combination of two major fiscal rules: 1) annual primary result target; and 2) expense limit.
The government of President Luiz Inácio Lula da Silva (PT) established a commitment of a deficit of 0.5% of the Gross Domestic Product (GDP) in 2023, balance in the following year and a surplus of 0.5% and 1% in 2025 and 2026 , respectively. During the period, the established tolerance interval was 0.25 percentage points up or down.
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The fiscal framework limits annual public spending growth to a range of 0.6% to 2.5% above inflation. Under the proposal, expenses will grow at a rate of 70% of the actual evolution of revenues in the previous year, provided that the minimum and maximum limits of the established band are respected.
In the event of non-compliance with the lower limit of the primary result target in the previous year, expenses may only grow at a rate of 50% of revenues in the following year, respecting the floor of 0.6% and the ceiling of 2.5%, discounted inflation measured by the Extended Consumer Price Index (IPCA), measured by the Brazilian Institute of Geography and Statistics (IBGE).
Seeking to meet the demands of the party benches, the rapporteur included “triggers” that must be triggered by the government in case of non-compliance with the established primary result target, resumed the need for contingencies provided for in the Fiscal Responsibility Law (LRF) if divergence is observed in regarding the objectives, it brought part of the quantitative parameters of the norm to the text itself and reduced the number of exceptions to the norm.
If the primary result achieved by the government in a fiscal year is lower than the minimum limit of the target tolerance interval, in addition to the limitation for the real growth of expenditures by 50% of revenues, or 0.6% real (whichever is greater), the replacement of the fiscal framework requires the immediate application of the following “triggers” to control the dynamics of public spending:
In the first year of non-compliance, the following prohibitions already provided for in the Federal Constitution apply:
1) Creation of a position, job or function that implies an increase in expenses;
2) Change in career structure that implies an increase in expenses;
3) Creation or increase of aid, advantages, bonuses, allowances, representation allowances or benefits of any nature, including those of an indemnity nature, in favor of members of Power, the Public Ministry or the Public Defender’s Office and public servants and employees and of military personnel, or even their dependents, except when derived from a final court decision or legal determination prior to the beginning of the application of the measures;
4) Concession or expansion of tax incentives or benefits.
If the result below the lower limit of the primary target occurs for the second consecutive year, the immediate application, as long as the non-compliance continues, of the other prohibitions provided for in art. 167-A of the Federal Constitution:
5) Concession, in any capacity, of advantage, increase, readjustment or adequacy of remuneration of members of Power or body, public servants and employees and military, except those derived from a final court decision or legal determination prior to the beginning of the application of the measures;
6) Admission or hiring of personnel, in any capacity, with the exception of: a) replacement of leadership and management positions that do not entail an increase in expenses; b) replacements arising from vacancies in effective or lifetime positions; c) temporary appointments, except in cases of temporary need of exceptional public interest; d) the replacement of temporary workers for the provision of military service and students of military training bodies;
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7) Conducting a public tender, except for replacement of vacancies;
8) Creation of mandatory expenditure;
9) Adoption of a measure that implies readjustment of mandatory expenditure above inflation variation, observing the preservation of purchasing power; It is
10) Creation or expansion of financing programs and lines, as well as remission, renegotiation or refinancing of debts that imply an increase in expenses with subsidies and grants.
But the report also opens up the possibility that, in these cases, the President of the Republic sends a message to the National Congress, accompanied by a complementary bill that proposes the partial suspension or gradation of the planned prohibitions, demonstrating that the impact and duration of the measures adopted will be enough to compensate for the difference between the calculated primary result and the lower limit of the indicated target tolerance interval.
Expenditure related to the readjustment of the minimum wage resulting from the guidelines instituted in the valorization law, whose project is still being processed by the Legislative Branch, is outside any control mechanisms. Such flexibility “ties” almost 1/3 of the Budget, making it difficult for the federal government to make adjustments. The prohibitions also do not apply in situations of public calamity at the national level.
The substitute also determines that the minimum level of discretionary expenses necessary for the regular functioning of the public administration cannot be set at a limit lower than 75% of the amount authorized in the respective budgetary law.
As a rule, programming for public investments included in the Annual Budget Bill (PLOA) will not be less than the amount equivalent to 0.6% of the Gross Domestic Product (GDP) estimated in the respective period.
In this case, investments per se and financial investments are referred to, when the expenditure is destined to housing programs that include in their objectives the subsidized or financed provision of new or used housing units in urban or rural areas.
It is also part of the substitutive device that foresees that, in case the primary result exceeds the upper limit of the tolerance interval of the established target, the federal government may increase expenses.
In this case, however, the rapporteur set a ceiling of 70% for this increase, which can be directed to investments, primarily for unfinished or ongoing works, and for financial investments. As long as there is no calculation of the primary deficit in that fiscal year.
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In the original proposal, there was only a limit for the investment “bonus” set at BRL 25 billion per year between 2025 and 2028, corresponding to just over 1/3 of the Budget reserved for this item in 2023 (BRL 71 billion).
And increases in expenses due to exceeding the target are not included in accounting for the minimum amount of expenses for subsequent years.
The substitute also determines that the expansion of budget appropriations cannot exceed, under any circumstances, the amount of up to 0.25 pp of the GDP of the fiscal year prior to the elaboration of the LOA (which today revolves around R$ 25 billion).
Debate in Plenary
In the plenary discussion phase, deputies showed concern about maintaining public policies after the approval of the fiscal framework. Base members, however, highlighted the importance of the mechanism for balancing public accounts and devices in the text that would preserve fundamental government programs.
Deputy Alencar Santana (PT-SP), who is deputy leader of the government in the legislative house, highlighted the commitment to the real increase in the minimum wage and to Bolsa Família, which were not guaranteed under the spending cap regime.
“It is a new fiscal and social framework, because it guarantees fundamental public policies for our country. We have the guarantee that the Fundeb will not decrease and we have the guarantee of a minimum investment”, he said.
Deputy Odair Cunha (PT-MG) stated that Cajado’s text is the balance between the different opinions of the House. “We cannot, in search of a text that is great, fall into the worst, which is the spending ceiling”, he said. He said the proposal guarantees economic stability, predictability and credibility.
Deputy Pedro Paulo (PSD-RJ) highlighted that the strategy of the fiscal rule is that of a State that will have more participation in the economy with public policies. “Understanding that the expense will grow, how can we discipline this expense? Creating certain triggers, reducing exclusions and setting limits”, he highlighted. He stated that the proposal will make it possible to carry out policies to reduce poverty.
Fundeb
Many deputies, on the other hand, highlighted their concern with the inclusion of Fundeb within the limits of the target. Complementation by the federal government to the fund would be limited to meeting the target.
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For Deputy Chico Alencar (Psol-RJ), it is a new regime to reduce investments. “It is a slimming regime of public policies. Isn’t limiting spending from 0.6% to 2.5% a ceiling?”, he questioned. For him, even if Fundeb has no losses, the resources will be withdrawn from other public policies.
Deputy Tabata Amaral (PSB-SP) also criticized the inclusion of Fundeb in the target. “Putting Fundeb under the roof is transforming education, which should be a priority, into the exact opposite”, she said. She defends that the complement of the Union to the fund be included in the exceptions of the proposal.
spending cap
For some deputies, the ideal is the spending ceiling model. Deputy Marcel van Hattem (Novo-RS) stated that the new tax regime will “encourage spending”. “It’s a blank check from the people’s money for the government to spend,” he said.
The leader of the opposition, deputy Carlos Jordy (PL-RJ), also criticized the measure. “Before we had the spending ceiling, now we are creating the spending floor”, he pointed out.
(with Câmara de Notícias Agency)
