Senate approves PEC dos Precatório after government makes new concessions in the proposal

After successive setbacks by the government, the plenary of the Senate approved this Thursday (2) the PEC (proposed amendment to the Constitution) of the Precatório. The proposal is the government’s mechanism to unlock the payment of the Auxílio Brasil social program of R$400 starting in December.

The text, which defaults on judicial debts recognized by the courts, was approved in the first round by 64 votes in favor and 13 against, in addition to two abstentions.

The senators reached an agreement so that the vote in the second round would take place afterwards, with the proposal being approved again, by 61 votes in favor and 10 against, in addition to one abstention. It needed the support of at least 49 senators, out of a total of 81 parliamentarians in the House.

As there was a change in the text, the proposal will still need to be processed again in the Chamber of Deputies. Government leaders affirm that there is an agreement with President Arthur Lira (PP-AL) for the vote to take place quickly.

Despite the concessions made by the government in negotiating with the Senate, the essential points of the proposal were maintained.

The PEC dos Precatórios is currently the main agenda of interest of President Jair Bolsonaro in Congress. The objective is to authorize the government to spend more and make viable the promise to raise the value of the Brazil Aid in an attempt to boost Bolsonaro’s reelection campaign in 2022.

“I have to point out that more than half of the families assisted by Auxílio Brasil are in the Northeast, which is the poorest region in Brazil”, said the rapporteur of the PEC, Fernando Bezerra (MDB-PE), who is government leader in the Senate .

In order to increase expenses for next year by around R$ 106 billion, the PEC has two 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 – debts that do not appear on this list will be postponed and paid off in later years.

On Thursday, the government backed down and answered the last four points that were demanded. It accepted that the limit for the payment of court orders is valid until 2026, and not until 2036 as provided for in the previous version.

By reducing the validity period by ten years, the new version of the PEC does not change the effects of the proposal in the 2022 Budget.

Senators fear that the creation of a ceiling on the payment of court orders will turn into a “snowball” and the Union will start accumulating too much debt in the future. Therefore, they asked to shorten the term of this measure.

Despite the setback, the OAB maintains the position of filing a lawsuit in the STF (Supreme Federal Court) against the PEC.

For the president of the National OAB Precatório Commission, Eduardo Gouvêa, the version approved by the Senate maintains what he calls “confiscation of private property”.

“The government and Congress, instead of creating a permanent source of revenue for this expenditure [Auxílio Brasil], used the resources of third parties, private individuals, individuals and companies, and appropriated this resource to pay a benefit.”

To get support for the PEC in the Senate, the government presented six versions of the text. Bezerra stated that the amendments to the proposal received the approval of the Executive.

In another change announced on Thursday, the government also agreed to make it clear that the increase in spending in 2022, from the approval of the PEC, will be linked to mandatory expenses, in the social area and the extension of the payroll tax exemption.

The text also provides for a mechanism for linking expenses that will no longer be paid in court orders to cover expenses with the social program and in the area of ​​social security, such as pensions, between 2023 and 2026.

Some senators reacted to the approval of the PEC dos Precatório, pointing out that it does not guarantee assistance for all needy Brazilians. Furthermore, some have argued that it represents a serious blow to the country’s fiscal responsibility framework.

“Official statistics show that more than 19 million Brazilians are hungry, so we emphasize PODES’ support for the provisional measure of Auxílio Brasil, which must be voted on today. Unfortunately, we cannot say the same things about the PEC dos Precatório”, he says the leader of Podemos, Álvaro Dias (Podemos-PR).

The senator then adds that it would be possible “to remedy the public accounts and allow development without the negative impact we will have with the proposal, which shakes the foundations of the Plano Real, which violates the Fiscal Responsibility Law, which changes the ceiling policy” .

The votes in the two rounds of the Senate were also marked by conflicting party positions in relation to the Chamber of Deputies. The PDT voted in full against the PEC dos Precatórios on Thursday. During the proceedings in the Chamber, however, the party’s position was the subject of controversy. A majority of the bench voted in the first round in favor of the proposal, resulting in criticism. Planalto pre-candidate Ciro Gomes even announced the suspension of his pre-candidacy by the party.

In the second round, however, the majority of deputies changed their vote and chose to reject the text.

The PT, in turn, took a contrary position in the Chamber of Deputies. On the other hand, in the Senate, practically the entire bench voted in favor of the proposal. Only Jean Paul Prates (PT-RN) abstained.

Ciro Gomes, then, took the opportunity to attack the party, which will be his opponent in the race to the Planalto, on social networks:

“Congratulations to the worthy senators of the PDT who voted against this aberration of the PEC of Precatório. A firm and correct position. The PT voted in favor of it. What they say at lunch is not good for dinner,” he wrote, prompting a virtual discussion .

“We struggled to stop the default, even emphasizing the highlight during the vote (which, by the way, if I had watched, I would never have made this post). The PEC that the PDT deputies helped to approve in the Chamber has completely changed in the Senate”, he countered the official account of the PT bench in the Senate.

The PEC dos Precatórios was approved on Tuesday (29) at the Senate Constitution and Justice Committee. However, the text still faced resistance from the main benches. Therefore, the government had to give in even more before the plenary vote.

This Wednesday, Bezerra had already signed with new versions of the proposal to respond to suggestions from senators from the PSDB, Citizenship and MDB. Requests from the PSD had already been accepted.

These parties act independently from the Planalto Palace and can change the course of projects of interest to the government in close votes.

The government agreed to withdraw a section of the PEC that provided for rules for the securitization of outstanding debt.

This week, in a defeat for the economic team, the rapporteur agreed to leave expenses with debts linked to Fundef (fund in the education area) out of the spending ceiling. Minister Paulo Guedes’ team (Economy) resisted this measure.

For 2022, there are more than R$17 billion in debt from Fundef transfers to states and municipalities. The PEC installments this account in three years.

By creating an exceptional treatment for Fundef’s debts, the government then opened space in the precatório payment limit to meet a request from the PSD and the MDB. These parties defended that there is a priority in the payment of food orders (for public servants).

To approve the PEC, the government also had to include in the text a relaxation of the rules for states that renegotiated debts with the Union and ended up failing to comply with the agreement not to break the state spending ceiling.

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

Last week, the government leader included a loophole for Auxílio Brasil to become a permanent social program, as Senate leaders defend, and frees the government from finding a measure to offset the increase in spending in this area – which would be for means of creating taxes or cutting expenses.

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 raise the benefit of Auxílio Brasil from the current R$ 224 to R$ 400 monthly only between December 2021 and December 2022. As it 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 still in December and without having to approve a project to increase taxes or cut expenses.

From 2023 onwards, new increases to be granted in the amount of Auxílio Brasil and in the number of families served by the program will only be released after the Executive presents a compensatory measure.

Understand the main points of the PEC of Precatório

1) Change in the spending ceiling index

• what is the ceiling: Constitutional rule passed in 2016 that limits the increase of most federal expenditures to the inflation of the previous year
• how is today: the ceiling is corrected by the inflation measured by the IPCA in 12 months until June of the previous year
• with stay: 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: Union debt already recognized by the courts and without possibility of appeal
• how is today: court orders entered in the Budget are paid
• how is it: a maximum amount to be paid in the year is created (calculation is based on the amount paid in court judgments in 2016 and corrects this number for inflation); court orders that fall outside this limit must be paid in other years; Senate reduced the period of validity of this limit by ten years
• Priority in payment: small value orders for the elderly and foodstuffs will have preference to be paid in the year in which they are issued; Senate took Fundef (education fund) debts outside the spending ceiling

3) Refills to municipalities

• what does the PEC: 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

• Limit for payment of court orders is valid until 2026, and not until 2036
• Social program (Auxílio Brasil) must be permanent, but does not need compensation for increased expenses (such as cutting other expenses or creating a tax)
• The increase in expenses in 2022, after the enactment of the PEC, will be used for mandatory expenses, for the social area and for the extension of the tax exemption for the payroll of 17 sectors
• Flexibility for states that renegotiated debts with the Union and ended up breaking the agreement not to break state spending ceiling
• Payment of Fundef’s precatory is outside the spending ceiling; teachers will receive resources such as salary bonuses, without the funds becoming a permanent salary increase