PT evaluates ceding and defining the value of the expansion of the spending ceiling in the Transition PEC

The team of the president-elect, Luiz Inácio Lula da Silva (PT), discusses fixing in the text of the PEC (proposed amendment to the Constitution) of the Transition the exact amount of extra expenses in the year 2023 to expand the Bolsa Família and recompose the Budget of next year.

The current reference for this figure is the calculation of BRL 150 billion made by the transition team as an indication of the margin for expanding expenses to match what should be spent in 2022, the last year of the administration of Jair Bolsonaro (PL).

According to the new estimates, additional spending in this proportion would keep constant the relationship between expenditure and GDP (Gross Domestic Product), a measure used to assess the dimension of public policies in comparison to the size of the economy. The current estimate is that the expense/GDP ratio should remain at 19% this year.

However, an increase in expenses of the magnitude intended by the PT, without compensation with increased revenues or cuts in other expenses, would have the consequence of increasing the account deficit in 2023. The Budget officially projects a shortfall of R$ 63.5 billion , but the current government has updated this estimate to a lower number, although still negative at BRL 40.4 billion.

The existence of public deficits indicates that the government is financing expenditures by issuing a larger volume of Brazilian debt. The cost is close to the economy’s basic interest rate, the Selic, currently at 13.75% per year.

The seam of this exit gains strength at a time when the PT tries to unblock the progress of the PEC amid criticism from the financial market and from some leaders in Congress.

These sectors fear that the current format of the proposal, excluding the Bolsa Família program from the spending cap without a predetermined amount, means a “blank check” for the new government. The party’s own estimate is that the social program would cost BRL 175 billion, but critics see the absence of an explicit lock as a loophole for the number to get even higher.

Uncertainty about the size of the bill has caused a lot of noise in the financial market and contributed to the rise in interest rates —which serve as a benchmark for the cost of public debt.

There is recognition among negotiators that setting a value in the PEC can help minimize the negative impact of the proposal. The format would also be more in line with the logic that has been defended by the transition economy group.

Expansion of the spending ceiling could be done for a specified period and come together with a device to restore the possibility of revising the rule by means of a complementary bill, which has a more simplified procedure than a PEC. Mention is made of the intention for the review to be carried out as early as 2023, with validity from 2024 – giving the new government time to debate the proposals.

The reading made by Lula’s team is that the inclusion of the instrument would reinforce the commitment of the new government with the reformulation of the fiscal framework. There is the possibility of providing guidelines for the new regime to be instituted, such as a periodic review of expenses.

Senator-elect Wellington Dias (PT-PI), the new government’s interlocutor in Budget discussions, has already incorporated into his speech the need to seek stability in the level of spending in relation to GDP.

Next year’s budget proposal was sent with an expenditure of 17.58% of GDP – a cut of 1.4 percentage points compared to this year, something considered by the party as impracticable given the risk of collapse in public policies.

“There is a need for us to guarantee the PEC of the Bolsa Família, that it be the PEC of the social, the PEC of functioning public services, the PEC also for investments, and, of course, the PEC of fiscal responsibility. With that, the primary , that base limit of 2022 of 19% of expenses as a proportion of GDP is also a reference for 2023”, said Dias in a video recorded and distributed by his press office.

The senator-elect spoke on Wednesday (23) with Senator Tasso Jereissati (PSDB-CE), author of a proposal to raise the spending ceiling by R$80 billion in 2023. After the meeting, the PT member said that the text presented by Tasso must be analyzed “with great attention” and indicated the possibility of convergence between the proposals, although with changes in the value.

According to negotiators interviewed by the Sheet, the model suggested by the toucan senator of expanding the spending ceiling, keeping expenses under this limit, can be incorporated into the Transition PEC. The assessment is that this would reduce the noise around the format, in addition to favoring the setting of a value.

The model also does not preclude the desire of parliamentarians to stamp additional resources for social programs, a way of building political discourse to broaden the acceptance of the PEC in Parliament.

Another possibility is to continue excluding Bolsa Família from the spending ceiling, but limited to the amount defined in the text.

The margin calculated for expanding expenditures in 2023 may also change. As the report showed, the IBGE (Brazilian Institute of Geography and Statistics) revised the 2020 GDP, indicating that there was a less intense drop in economic activity than initially calculated. The incorporation of this change in the calculation base should trigger a wave of revisions in the data for the following periods, interfering with the expenditure/GDP ratio verified in 2022 and expected for 2023.

The publication of the revision will be made by the IBGE on December 1st. Even if this results in a margin higher than the current R$ 150 billion calculated by Lula’s transition, the value can be modified in the PEC during the course of action in the National Congress.

On the other hand, the gain may be less intense if a scenario of lower economic growth prevails next year. For the time being, the 2023 Budget is being formulated with an estimated increase of 2.5% in GDP, a scenario considered optimistic by the market (which expects 0.7% on average). The Economy Ministry revised its forecast last week to 2.1%.