Government removes the precatory of education from the ceiling, and CCJ of the Senate approves new text of the PEC

To guarantee the approval in the Senate of the PEC (proposed amendment to the Constitution) of the Precatório, which makes the Brazilian Aid of R$ 400 feasible, the government gave in to pressure and agreed to leave out expenses with debts linked to Fundef (fund for the education area) the spending ceiling.

This paved the way for the CCJ (Committee on Constitution and Justice) to approve this Tuesday (30) the new version of the PEC, which now goes to the Senate floor. But the House’s resistance to the project has not been resolved, and new concessions must be made by the Planalto Palace.

The text was approved by the committee by 16 votes in favor and 10 against. In the plenary vote, the government needs the support of 49 of the 81 senators, in two rounds of voting.

After the vote in the committee, the leader of the government in the Senate and rapporteur of the proposal, Fernando Bezerra (MDB-PE), tried to take the PEC for analysis by the plenary this Tuesday night, but there was a postponement to this Wednesday (1).

There is still pressure from senators for more changes to the proposal. One of them is to link any increase in expenses after the approval of the PEC to mandatory and social expenses. This removes room for adjustment in the Budget, for example, to pay for payroll tax relief for 17 sectors, as planned by the Ministry of Economy.

Another request is for the maximum limit for the payment of court orders to be in effect for a shorter period (until 2026, for example, instead of 2036, as it is already in the version that went through the Chamber).

With that, the government will still negotiate adjustments in the PEC on the eve of the vote. Party leaders say there is currently no safe margin to pass the measure.

If approved in plenary, the proposal must be voted on again by the Chamber of Deputies. Pacheco said on Tuesday that there is the possibility of promulgating, after the vote in the Senate, only the sections that had already been approved by the Chamber and the Senate.

“Technically it is possible [promulgar os trechos em comum], but there is no decision. We are going to evaluate the text, whatever is converging between the Senate and the Chamber, which can obviously be enacted,” he said.

The political victory in the Senate was the result of a defeat by the team of minister Paulo Guedes (Economy), which had been resisting leaving the Fundef’s debts outside the ceiling — a rule that prevents expenditure growth above inflation.

The change in the PEC text was released this Tuesday (30) by the rapporteur Fernando Bezerra, who was pressured by the largest benches in the House.

The removal of Fundef’s court orders from the expenditure ceiling was a particular demand of the PSD, the second largest bench in the Senate, with 12 senators. One of the most ardent supporters of the measure was senator Otto Alencar (PSD-BA).

Precatório are debts of the Union that have already been recognized by the Court (no further appeal). For 2022, there are around R$ 16 billion in debts from Fundef transfers (Funding for the Maintenance and Development of Elementary Education and the Valorization of Teaching) for Bahia, Pernambuco, Ceará and Amazonas. There are still R$1.3 billion owed to municipalities. The PEC installments this account in three years.

Fundef’s share forecast for 2022 is expected to exceed R$ 8 billion. Bezerra had to put this expense outside the spending ceiling to meet a request from the PSD and the MDB, which is the largest bench in the Senate.

These parties defend that there is a priority in the payment of food orders (for public servants).

As the PEC creates a maximum amount in spending on court orders per year, the government had to give in and create an exceptional treatment for Fundef’s debts. The argument is that transfers from Fundeb (which replaced Fundef) are currently not accounted for under the spending ceiling.

Thus, within the ceiling, approximately R$34 billion must be paid for debts of small amounts and for the elderly, in addition to approximately R$8 billion for food.

The PEC dos Precatórios is currently the main agenda of interest of President Jair Bolsonaro in Congress. It authorizes the government to spend more and makes possible government promises in the social area, such as the increase in Brazil Aid, which seek to boost Bolsonaro’s reelection campaign in 2022.

In order to increase expenses for next year by around R$ 106 billion, the PEC has two main pillars.

One measure allows for a dribble in the spending ceiling, retroactively recalculating that limit. The other measure creates a maximum value for the payment of court orders.

Despite the large amount to be added to 2022 expenses, the budget space is not enough to cover all of Bolsonaro’s promises, such as financial assistance to truck drivers and salary increases for federal civil servants.

The first version of Bezerra’s report was presented last week, but there was a request for views from several parties, so that the proposal was only voted on this Tuesday (30). The parties with more numerous benches even threatened to impose a defeat on the government, if there was no change.

“I can’t agree in any way with Senator Bezerra’s report. We have alternatives. We don’t need to mess with the ceiling rule. We don’t need to default on precatories. And we do have how to make Brazil Aid”, said the senator Oriovisto Guimarães (Podemos-PR), who articulates an alternative proposal to the government’s PEC, whose objective is to remove all precatory payments from the expenditure ceiling account – which Guedes does not like.

​Over the last few days of negotiations, Bezerra had said that he was confident that the CCJ would be approved, but that he already anticipated a tight vote. The government leader in the Senate came to predict this Tuesday (30) including a more pessimistic score than he had been saying last week, with 14 or 15 votes in favor – he even spoke of 17 last week.

The new version presented by the rapporteur on Tuesday (30) aims to meet requests from senators and governors. The goal is to reduce criticism of the PEC, which needs broad support in the plenary.

One of the changes made the rules more flexible for states that renegotiated debts with the Union and ended up failing to comply with the agreement not to break the state spending ceiling.

“It is not a matter for the PEC dos Precatório, but it is a demand that was requested by the senators,” stated Bezerra.

The amendment allows these states to repay the Union even for the longer term (benefit of debt renegotiation) as long as they adopt expenditure control measures, such as preventing salary increases for civil servants, barring public examinations and prohibiting the creation of new expenses mandatory.

The rapporteur affirms that there will be no financial loss for the Union. “Its impact is neutral for the Union, because the resources will be returned to them with payment charges”, says the senator.

In the new report, the text was changed so that new increases to be granted in the amount of Auxílio Brasil and in the number of families served by the program are only released after the Executive presents a compensatory measure (creation of new taxes or cuts in expenses).

Last week, the government leader included a loophole for Auxílio Brasil to become a permanent social program, as advocated by Senate leaders, and frees the government from finding a measure to offset the increase in spending in this area.

In the assessment of economists and congressional technicians, this represents a dribble in the LRF (Fiscal Responsibility Law), which requires compensation when the government has a new permanent expense.

Initially, the government planned to increase the benefit of Auxílio Brasil from the current R$ 224 to R$ 400 monthly only between December 2021 and December 2022. As the measure would have a temporary nature, it would not be necessary to find a compensatory measure.

The Senate, however, pressed for the R$400 program to be permanent. Therefore, the government had to look for a solution to make the measure viable next month without having to approve a project to increase taxes or cut expenses.

“Thereby [mudança no texto nesta terça], new future increases in the values ​​of the Brazil Aid Program would need to indicate as a source of funding the permanent reduction in expenses or the permanent increase in revenue,” stated the rapporteur.

Another change made by Bezerra was to make it clear that the limit provided for in the PEC is for the payment of court orders. In the previous text, it was written that the limit would be for issuing a precatório, but this act (which generates the debt to be paid by the Union) belongs to the Judiciary. Therefore, there would be a hindrance to the performance of the Judiciary, and not to the amount to be paid in the year.

Bezerra also included a period of 90 days for the entry into force of the terms provided for in the PEC, for the regulation of operational aspects of the settlement of accounts between the Federal Government and private creditors.

To meet more requests from senators, the government leader says he will make it clear that the social program, called Auxílio Brasil, is permanent and that the space opened in the Budget with the PEC aims to serve the social area.

Understand the main points of the PEC of Precatório

1) Change in the spending ceiling index

• What is the ceiling: constitutional rule approved in 2016 that limits the increase of most federal expenditures to the inflation of the previous year
• As it is today: the ceiling is corrected by the inflation measured by the IPCA in 12 months until June of the previous year
• As is: the amount is recalculated, retroactively, based on the IPCA from January to December; in practice, it widens the roof.

2) Ceiling for payment of court orders

• What is precatory: debts of the Union already recognized by the Court and without possibility of appeal
• As it is today: court orders entered in the Budget are paid
• As is: a maximum amount to be paid in the year is created (calculation uses as a basis the amount paid in court judgments in 2016 and corrects this number for inflation); the court orders that fall outside this limit must be paid in other years
• Priority in payment: small value orders, for the elderly and food, will have preference to be paid in the year in which they are issued; Senate wants to remove Fundef debts (education fund) from spending ceiling

3) Refills to municipalities

• What the PEC says: possibility for municipalities to pay debts to the Union in installments if they approve local Social Security reforms
• Conditions: municipalities will have to demonstrate specific changes in social security rules. One is that municipal employees will not be able to pay lower rates than federal employees

Major changes in the Senate

• Social program (Auxílio Brasil) should be permanent, but it will not need compensation for the increase in expenses (such as cutting other expenses or creating a tax)
• It is clear that the increase in expenses after the enactment of the PEC will be used for mandatory expenses and for the social area; there is also an agreement to pay for the extension of the payroll exemption for 17 sectors
• There is flexibility for states that renegotiated debts with the Union and ended up not complying with the agreement not to break state spending ceiling
• Fundef’s precatory payment is outside the spending ceiling; teachers will receive resources such as salary bonuses, without the amount becoming a permanent salary increase

Score in the CCJ of the Senate

• 16 voted in favor
• 10 voted against