Rapporteur proposes Transition PEC with two-year spending license

The rapporteur of the PEC (proposed amendment to the Constitution) of the Transition, senator Alexandre Silveira (PSD-MG), presented this Tuesday (6) a version that, despite reducing the period of validity from four to two years, provides for a authorization of up to R$ 198 billion for the beginning of the new government of Luiz Inácio Lula da Silva (PT).

In agreement with leaders of Congress and the PT, the rapporteur left a loophole so that the PEC could also make room in the 2022 Budget. With that, there is room for the government of Jair Bolsonaro (PL) to release parliamentary amendments that are blocked by cause of fiscal tightening.

The articulation to use Lula’s PEC to unlock the amendments of Bolsonaro’s allies was revealed by Sheet in November.

The PEC was proposed by Lula’s team, which hopes to approve the text later this year. Silveira’s report was presented at a session of the Senate’s CCJ (Commission on Constitution and Justice). Afterwards, the text still needs to go through the plenary of the House with the support of at least 49 senators.

Unlike the original text, which provided for placing the Auxílio Brasil (which will be renamed Bolsa Família) outside the spending ceiling, Silveira proposed an increase of R$ 175 billion in limiting expenses.

The idea is that this amount will be used to maintain the social benefit in the amount of R$600 and pay an additional R$150 per child up to six years old.

However, the rapporteur’s text does not put a stamp on the value of R$ 175 billion. Therefore, if Lula spends less on the social program, he will be able to use the remainder of that spending in other areas.

This model is of interest to the PT, which already finds it difficult to implement the additional benefit of BRL 150 per child in Bolsa Família in the first few months.

In addition, Silveira says that, by blocking the increase in the ceiling at R$ 175 billion, the financial market is calmer, as it reduces the expectation that the new Lula government will be able to adopt measures that further expand the forecast of expenses of the social program .

Silveira also pointed out that the elected government will present a new fiscal framework by the end of 2023 “with the aim of guaranteeing the country’s macroeconomic stability and creating adequate conditions for socioeconomic growth” — one of the demands of the financial market.

“It is the forecast of a complementary law for the institution of a sustainable fiscal regime (a new fiscal framework), inspired by PEC nº 34, of 2022, which must be forwarded by the President of the Republic to the National Congress by 12/31/2023” , he wrote.

The PEC provides for the release of space in the Budget so that Lula can fulfill campaign promises, such as the minimum amount of R$ 600 for Bolsa Família beneficiaries and the real increase (above inflation) of the minimum wage.

Initially, the new government’s transition team advocated that the income transfer program be exceptionalized from the ceiling on a permanent basis (with no defined deadline). The text filed by Lula’s allies in the Senate foresaw the exclusion of Bolsa Família from the ceiling for four years.

Even with the retreat, congressional leaders resisted giving this check to Lula to spend throughout his term. The assessment of most parties was that the measure would weaken the bargaining power of the Chamber and the Senate with the new government.

Therefore, as shown by Sheet at the end of november, the PT already admitted to giving in for a period of two years after the summit of Congress and party leaders concluded that the PEC would only have a chance of passing in this format.

An increase in expenses in the magnitude intended by the PT (R$ 198 billion), without compensation with an increase in revenues or a cut in other expenses, would have the consequence of increasing the account deficit in 2023.

The Budget officially projects a shortfall of BRL 63.5 billion, but the current government has updated this estimate to a lower figure, 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.

Interlocutors from the elected government have already received the signal that senators from the base of Jair Bolsonaro (PL) should ask for a view (more time for analysis). In this case, the PEC could be voted in the CCJ on Wednesday morning and in the Senate plenary on Wednesday afternoon (7).