Understand the comings and goings of the Transition PEC

Vital for the president-elect, Luiz Inácio Lula da Silva (PT), to be able to fulfill his campaign promises —such as maintaining the BRL 600 Bolsa Família — the so-called PEC (proposed amendment to the Constitution) of the Transition faces setbacks along the way to win its approval in Congress.

The PEC was filed last Monday (28), by Senator Marcelo Castro (MDB-PI) and provides, among other measures, that expenses with the income transfer program be removed from the spending ceiling. In total, it is estimated that around R$ 198 billion a year will remain outside the ceiling.

Understand the comings and goings of the proposal:

Why does Lula want the PEC?

The PEC is considered crucial by the command of the transition team for the future government, as it would allow the execution of campaign promises that are dear to President-elect Lula, such as maintaining the Bolsa Família (currently Auxílio Brasil) at R$ 600 and the recovery of the budget of important programs, such as Farmácia Popular. The planned budget for 2023, which was presented by the government of Jair Bolsonaro (PL), does not provide for these amounts.

What was initially proposed?

The elected government asked that expenses with the Bolsa Familia stay outside the spending ceiling — a mechanism that limits the increase in public expenses to the inflation of the previous year — for an indefinite period. The absence of a deadline, however, was not well received by opponents and the market.

What were the criticisms?

The signs of increased spending and less firm debt control increased the demands on the elected government. In recent days, the transition team has begun to wave measures such as reversal of tax exemptions, periodic assessment of expenses and fine-tooth combing in contracts — but the lack of detail in the proposals still generates distrust in the market. Critics also demand the indication of who will be Lula’s future finance minister, in order to have a clearer horizon on economic policy from 2023.

Why did the PEC crash?

Without a solid basis for negotiation, the PT saw the Transition PEC stall in the Senate and needed to set up a task force to avoid losses and ensure the approval of the text by the end of the year. To try to reverse the difficulties, the PT called on the senator, former minister and former governor of Bahia, Jaques Wagner, to reinforce the articulation. The proposal also reached Congress with a setback compared to the previous one, with Bolsa Família expenses off the ceiling for just four years (2023 to 2026).

What does Congress want to change?

In search of resources in the 2022 Budget, congressional leaders are betting on the PEC and on dialogue with Lula’s allies to release the so-called rapporteur amendments. The strategy is to include in the text a device that authorizes expenses above the spending ceiling as early as 2022 to reverse the BRL 15.4 billion blockade that is in effect. In addition to leaving areas such as health and education with no cash, cost containment stopped R$ 7.8 billion in amendments, funds used to irrigate works and projects of interest to parliamentarians.

What happens if the PEC is not approved?

The PEC should be voted on in the Senate plenary in two shifts, sending the text to the Chamber of Deputies. The two Houses must finalize the vote before December 16, when Congress needs to define the Budget for next year. To move forward, the PEC needs to be approved with three-fifths of the votes — 308 in the House and 49 in the Senate. Behind the scenes, the elected government says it has a preference for the PEC, despite seeking alternatives in case the text is not approved.

What are the alternatives, in case of defeat?

One option is to resort to a TCU precedent (Tribunal de Contas da União) to fund part of the necessary expenses with extraordinary credits, an instrument that is outside the spending ceiling and is intended for urgent and unpredictable expenses, but this alternative comes up against obstacles from the fiscal target and the golden rule (which prevents the issuance of debt to cover current expenses).

Another option is to seek support from the STF (Federal Supreme Court): a decision by the Court in 2021 determined that the Executive Branch would regulate the Citizen’s Basic Income, provided for in a 2004 law, until the end of 2022. The strategy would be to obtain a new decision judicial in the sense that, given the Basic Income law, the government cannot reduce Bolsa Família.