Treasury proposes to exclude precatories from the new spending ceiling

A year after the Jair Bolsonaro (PL) government proposed postponing the payment of federal government precatories to make room in the budget in an election year, the National Treasury defends the exclusion of these judicial debts from the limit to be imposed by the new spending ceiling under discussion in the body. .

The Treasury’s perception is that restricting the annual volume of payment of judicial debts generates accumulation of liabilities by deferring government obligations. For this reason, the agency believes that it is better to ensure the full payment of precatories, outside the spending ceiling — and, in parallel, there would be the adoption of measures to monitor and control these expenses.

The proposal has the potential to reopen the controversy surrounding the topic. Defended by the political wing and by Minister Paulo Guedes (Economy), the change in the precatorios rules was branded as a default by experts, who warned of the risk of a snowball formed by these debts.

The Union should end the year with R$ 22.3 billion in unpaid precatories, account that would reach R$ 51.2 billion at the end of 2023, according to the government’s own estimates.

Precatórios are debts of the Union after a final judgment in court. The amounts owed are uncontroversial, that is, the federal government is only responsible for paying them as determined by the Courts.

Last year, the government created a lock for the payment of these debts after detecting a “meteor”, as Guedes classified it, in the amount of R$ 89 billion to be included in the 2022 Budget proposal.

The sudden increase in these expenditures would end up occupying the budget space while Bolsonaro planned to grant social benefits in an election year.

To avoid the frustration of the president’s plans, the solution was to propose a PEC (proposed amendment to the Constitution) that set a sub-ceiling for the payment of judicial debts – which internally gained the nickname “tetinho”. The mechanism limits the payment of precatories to the amount paid in 2016 adjusted for inflation, with the surplus being transferred to the following year’s accounts (and so on until 2026).

The government’s bet to avoid a snowball with the precatories is the so-called meeting of accounts, through which the creditors of the Union can use the precatories as a kind of bargaining chip to reduce tax debts or bid in concession or privatization auctions. .

However, the mechanism has not yet been fully regulated by the government. Only one account meeting has been held so far, between the Union and the City of São Paulo. The two ended the legal dispute over Campo de Marte, which would result in compensation to be paid by the federal government, in exchange for the extinction of the municipal debt.

The move to precatories is discussed at the National Treasury amid the redesign of the spending ceiling. as anticipated the Sheet, the agency prepares a mechanism that authorizes real expenditure growth according to the level and trajectory of public debt, at a rate to be defined every two years. The rule also grants an annual bonus for expanding spending in the event of an improvement in the surplus in public accounts.

By the design of the Treasury, the new rule would come into force in 2024. According to information collected by the Sheetthe agency’s internal simulations on the functioning of the new ceiling already consider the exclusion of precatories from the same year.

One of the main concerns of technicians when proposing the removal of precatories from the new spending ceiling is that these expenses do not show any clear trend, which allows for a projection with quality and foundation.

Between 2021 and 2022, the expenditure forecast jumped by 60.8%. In the transition from 2022 to 2023, the increase was only 2% (comparing gross values, before the application of the limits).

If these expenses were included in the new ceiling, their fluctuations would cause enormous uncertainty about the space available for other public policies. In the current format, the risk is the formation of a billion-dollar debt liability.

The Treasury considers that the PEC dos Precatórios was important to draw attention to the problem of the increase in judicial sentences against the Union. However, the agency now understands that it is better to remove it from the ceiling.

In internal discussions, there is an understanding that the change in the precatories rule would need to be accompanied by monitoring and transparency initiatives, as well as the execution of actions aimed at reducing these expenses.

In recent years, the spending ceiling has been successively amended to accommodate extra spending on social benefits. The most recent initiative took place on the eve of the electoral campaign, to establish a “state of emergency” and pave the way for the boosted Auxílio Brasil of R$600 and benefits for truck drivers and taxi drivers, groups that are part of Bolsonaro’s support base.

Without the same subterfuge, the 2023 Budget was sent to the National Congress without resources to ensure the continuity of the Auxílio Brasil of R$ 600 and with a wide cut in social areas. To avoid a blackout, economists who advise the main candidates for the Presidency of the Republic have advocated changes to the ceiling.

The Treasury proposal has been developed by technicians as a way of contributing to this discussion. As it is a State body, there is care behind the scenes to prevent the proposal from being contaminated by electoral differences. But the posture is one of collaboration in the face of any demonstration of interest by interlocutors of the future president-elect.