PEC dos Precatório can give Bolsonaro up to R$ 35.5 billion to increase spending in election year

The PEC (Proposed Amendment to the Constitution) of the Precatório can give President Jair Bolsonaro (PL) an extra space of up to R$ 35.5 billion to spend in an election year, estimates the Federal Senate’s IFI (Independent Fiscal Institution).

The proposal, whose final part was enacted this Thursday (16) by the National Congress, should open a total slack of R$ 117.9 billion, in the agency’s accounts.

A large part of this amount will be allocated to the expansion of the social program, now called Auxílio Brasil, and to the correction of social security and assistance benefits due to higher inflation.

The remaining amount, calculated at R$35.5 billion, may be allocated to other primary expenses of the federal government, according to the IFI.

Congress stamped the extra slack for use in mandatory expenditures or those related to the social area and the extension of the exemption from the payroll of companies.

The measure, however, does not guarantee that the money will be used exclusively for these areas, warned the executive director of the IFI, Felipe Salto.

“The link was a positive initiative by the Senate, not least because it generated a greater debate, but it is very difficult to put stamps on public money [pelo lado da despesa]. Binding the revenue would be even more effective,” he said.

IFI director Daniel Couri explained that, in the way the text was written, the space was linked to expenses that already exist, not to the growth of these expenses. By this interpretation, the simple approval of the Budget is enough to attend the constitutional command.

The release of the number could put even more pressure on the government, which has already had to manage several requests for increased spending in an election year.

Bolsonaro, for example, has promised salary readjustments to federal police officers. The Ministry of Justice calculates the impact of the measure at R$2.8 billion, but the Ministry of Economy works to limit this amount.

The IFI’s projection for the total open space in the spending ceiling – a rule that limits the advance of spending to the variation of inflation – is greater than the R$ 106.1 billion estimated by the federal government.

The most significant expansion is due to the acceleration of inflation. While the government predicts that the IPCA (Broad National Consumer Price Index) will close the year at 9.7%, the IFI estimates a variation of 10.4%.

Even if inflation ends the year closer to the Ministry of Economy’s estimate, the extra space for Bolsonaro to spend in 2022 would still be R$ 24.6 billion, according to the institution.

The PEC dos Precatórios promotes two changes that make room for the Budget. The first of them, which has already been enacted, is the change in the rule for calculating the spending ceiling, which is now corrected for the 12-month inflation up to December of the previous year — before, the 12-month data to June was used.

In government accounts, this change would release BRL 62.2 billion, but the IFI projects a higher value, of BRL 73.2 billion.

The other modification is the ceiling for payment of court orders, judicial debts of the Union against which there is no longer any appeal. The limit will allow the government to postpone the settlement of these debts — that’s why the proposal became known as PEC do Calote.

According to the Senate body, the limit for court orders will open another R$44.7 billion. The government estimated a space of R$43.8 billion.

A third factor also contributes to the extra slack for Bolsonaro to spend in 2022. In the IFI’s accounts, government estimates for mandatory spending next year are inflated.

The additional expense with readjustment of pensions, for example, is estimated at R$ 29.2 billion by the government. The institution, in turn, expects an increase of R$ 17.5 billion.

The differences extend to the projections of assistance expenses, unemployment insurance and minimum health and education.

The increase of R$ 54.6 billion in the Auxílio Brasil budget, proposed by Guedes’ team to the rapporteur of the 2022 Budget, Deputy Hugo Leal (PSD-RJ), would also be smaller. In the IFI’s assessment, the additional expense would be R$50 billion.

“The government always has this tendency to be more conservative,” said Salto. He warned, however, that the numbers could still change and urged caution before classifying the government’s estimates as overestimated.

Earlier this year, Congress made significant cuts in the obligatory expenditure forecast to supercharge parliamentary amendments, which left the budget in check. The economic team needed to reverse part of the changes to be able to honor the pension payments.

The scenario of higher spending should also lead the government’s gross debt to resume its growth trajectory next year. The agency expects the indicator to end 2021 at 82.1% of GDP (Gross Domestic Product), rising to 84.8% in 2022.

“The IFI highlights the loss of credibility associated with the changes in the spending ceiling and the precatory regime as a central point to explain the deterioration of the prospective framework. This is not a scenario of insolvency, but of fragility of fiscal rules”, said the organ.

The institution also revised its projection for growth, in the same direction as other economists and financial market analysts. In the accounts of the IFI, GDP should advance 0.5% in 2022, after growth of 4.6% this year.

Before, the agency’s projection was that the Brazilian economy would advance 4.9% in 2021 and 1.7% next year.