Treasury proposal for flexible spending cap makes spending cap permanent

The proposal for a new fiscal rule being drafted by the National Treasury could transform the spending ceiling, which is currently in effect until 2036, into a permanent policy for the country’s public accounts.

According to technicians from the body, the design under discussion would give “perenniality” to the rule, approved by the National Congress in 2016 with a duration of 20 years.

The new spending ceiling, however, would be more flexible, with room for expansion of expenses in scenarios of a more benevolent trajectory of the public debt, as shown by the Sheet.

Today, the ceiling is only corrected by the IPCA (Ample National Consumer Price Index), but the experts’ idea is that federal expenditures can grow above inflation if federal indebtedness is below a certain level or on a downward trajectory.

“What we are proposing, in general terms, is to reinforce the expense rule, the ceiling rule, making it a little more flexible if we have a debt situation on a favorable, declining trajectory, or at lower levels. So, basically the idea that we are trying to give is a little more permanence to the rule, in this line”, said the undersecretary for Strategic Planning of the Treasury’s Fiscal Policy, David Athayde, in an interview with journalists about the result of the public accounts for the month of July .

“It is important for us to reinforce the spending rule, making it more permanent, and then giving a little more flexibility if the debt is at a better time, at a lower level or a falling level, more favorable, in order to allow the government to spend a little more,” added Athayde.

The proposal should only be officially presented after the elections, but the Treasury expects, throughout the month of September, to collect impressions and contributions from academics and financial market agents. A discussion text is being prepared at the organ.

Even before its release, however, the proposal has drawn criticism from economists, who see a risk of maneuvers to accelerate spending flexibility without the political cost of changing the fiscal rule.

In addition, former President Luiz Inácio Lula da Silva (PT), who leads polls for voting intentions for the Presidency of the Republic, has already said he is against maintaining the expenditure limit — although PT economists defend putting another rule in the place of the ceiling, not the mere end of the norm.

The spending ceiling was proposed by the Michel Temer government (MDB). In the explanatory memorandum of the PEC (proposed amendment to the Constitution), the then Ministers of Finance, Henrique Meirelles, and of Planning, Dyogo Oliveira, justified the 20-year term.

“This is the time we consider necessary to transform fiscal institutions through reforms that guarantee that the public debt remains at a safe level”, says the 2016 text. Due to its previously established duration, the ceiling rules were included in the so-called ADCT (Transitional Constitutional Provisions Act).

As of the tenth year of the ceiling (that is, 2026), the President of the Republic could propose a change in the ceiling correction index through a complementary bill, without the need to amend the Constitution.

However, this provision was revoked by the PEC dos Precatórios, proposed by the Jair Bolsonaro government (PL) which, in practice, has already relaxed the ceiling ahead of time and accommodated increased expenses in an election year.

Since its approval, the ceiling has faced criticism from different sectors, who accuse the rule of having caused a strong containment of resources on different fronts that should be seen as priorities.

Bolsonaro himself has already publicly defended changes to the rule to expand public investments. In his re-election campaign, the Chief Executive also promises to keep the floor of R$ 600 for families benefiting from Auxílio Brasil and grant readjustments to the civil service – measures that cost more than R$ 60 billion, with no space on the ceiling.

For the National Treasury, the spending limit rule has the advantage of being simple and targeting the variable that the government effectively controls: public spending.

“An expense rule brings budget realism, in that it will not allocate expenditure in the Budget based on a revenue projection that can be optimistic,” Athayde said.

He pointed out that, according to the design being prepared, the public debt would serve as a reference for adjusting the spending rule, eventually allowing for the expansion of spending. It would not be a target for indebtedness.

Internally, the possibility of periodic reassessments of the limit correction mechanisms cannot be ruled out in the proposal for a new spending ceiling, similar to what was originally approved in 2016.

“We are still finalizing an internal discussion within the Ministry of Economy, together with the Secretariat for Economic Policy and the Secretariat for the Federal Budget, and we intend to have these debates with various segments of society, whether academia or the financial market, as of September. , whether other institutions such as TCU [Tribunal de Contas da União] and Central Bank”, said the Secretary of the National Treasury, Paulo Valle.

“We don’t have a deadline to send this [proposta] to the National Congress, but it will certainly be after the election”, added the secretary.