Rapporteur of the Transition PEC raises ceiling and opens space for rapporteur amendment; understand

The rapporteur of the PEC (proposed amendment to the Constitution) of the Transition, senator Alexandre Silveira (PSD-MG), mixed different proposals in his report, presented this Tuesday (6). The text is under discussion at the CCJ (Commission on Constitution and Justice).

The text presented by the rapporteur proposes that the ceiling be raised for most new expenditures. In the suggested engineer, the R$ 175 billion devoted to social expenses are under the ceiling, while a smaller amount, of R$ 23 billion directed to investments, are outside the ceiling. The change is valid for two years.

PEC 32, by Senator Marcelo Castro, proposed that a total of R$ 198 billion would remain outside the ceiling for four years. This Monday (5), Castro already admitted a period of two years.

In addition to PCE 32, which defends the proposal of the elected government of Luiz Inácio Lula da Silva (PT), Silveira took into account the PECs 31, 33 and 34, all of 2022 and presented with the goal of making room for new spending and proposing tax rule alternatives.

According to economist Marcos Mendes, one of the fathers of the spending ceiling rule, the rapporteur’s proposal has several positive points. However, Mendes, who is also a columnist for Sheetconsiders the proposed value to be high.

“Although it has evolved in relation to the original proposal, by leaving Bolsa Família within the ceiling, the fiscal expansion is still very large”, he says. In the economist’s evaluation, the ideal value must be below R$ 90 billion.

There are discussions for the total amount to remain at R$ 175 billion. Transition economists have already stated that an additional between R$135 billion and R$150 billion fulfills campaign promises.

The final amount is still up for debate and a middle ground should mobilize negotiations, not only between senators, but also with deputies, still in the Senate. There is an agreement for the value not to be changed in the Chamber.

Mendes, however, claims that attention is needed with some points in the report.

One of them is the one that allows BRL 23 billion to fund investments outside the ceiling, as long as there is excess revenue in the budget forecast. As there is no date set, a window opens to pay rapporteur amendments, the so-called RP9, as early as 2022.

Also worthy of attention is the device that allows removing from the ceiling “expenses defrayed by funds from transfers from other entities of the federation to the Union”, intended for the direct execution of works and engineering services.

“This smells like tortoises,” he says. Jabuti is the name given to amendments outside the original proposal of a project, which serves the interests of third parties and can have controversial financial consequences.

In the justifications, the measure is defended as an alternative to enable works carried out by the Army. In practice, however, warns Mendes, there may be incentives to increase mandatory transfers, such as for the Municipalities Participation Fund, with the return of money to the Union to spend outside the ceiling.

Mendes also points out that there is an obligation to allocate the fiscal space open to mandatory (the RP1) and discretionary (the RP2) expenses. At first, the measure would prevent the increase in rapporteur amendments (RP9). However, highlights the economist, in practice, expenses of interest to deputies may be classified as RP2.

The chairman of the commission, senator Davi Alcolumbre (União Brasil-AP), wants to conclude the vote still this Tuesday, but the discussions may extend until Wednesday (7), when the vote should take place in the plenary of the Senate, with the text heading to the Chamber.

The rapporteur left a loophole so that the Transition PEC can also make room in the 2022 Budget, and changes the rule for precatories. Below, the main highlights, according to Mendes.

REPORT POINT TO POINT

• Didn’t remove Bolsa Família from spending cap
• Opened space to pay rapporteur amendments in 2022
• It only increased the Executive limit, not opening more expenses for the other powers
• The R$ 175 billion increase is a fixed nominal value for 2023 and 2024, not being incorporated into the calculation base and not being readjusted by the IPCA each year
• Congress will be free to allocate the open ceiling space as it sees fit. Article 4 of the PEC states that the requests of the transition team may (and not that “should”) be met in the allocation of the additional expense
• The index for the total amount of precatories to be paid was changed. Currently, this value is corrected by the ceiling correction. In order to prevent the increase in the ceiling from being partially consumed by the payment of more precatories, the index of the limit of precatorios to the IPCA was changed. The snowball of unpaid precatories will continue
• The DRU (Unbinding Federal Revenues, which allows the government to freely use 20% of federal taxes linked by law to funds or expenses) was extended until the end of 2024. In this case, there is little practical effect, as many linked revenues, such as those of education are outside the mechanism, in addition to the fact that there is no longer a surplus in the social security budget that was used to cover the deficit in the fiscal budget
• The proposal obliges the Executive to submit a new proposal for a fiscal rule by the end of 2023. When this new rule is approved, the current ceiling will be revoked from the Constitution

OTHER PECs EVALUATED

PEC 31
Presented by Senator José Serra
P, proposes that the President of the Republic forward to the Federal Senate, within six months after the enactment of the constitutional amendment, proposed for the amount of the Union’s consolidated debt. Once the global debt limit is approved, the spending cap will be revoked. The PEC also guarantees, on an emergency basis, extraordinary credits in the limit of up to R$ 100 billion to cover expenses related to income transfer programs.

PEC 33
Presented by Senator Tasso Jereissati
Proposes maintaining the Spending Ceiling, but adds, for the 2023 financial year, the amount of R$ 80 billion. This amount will be incorporated into the ceiling in subsequent years. Additionally, similarly to PEC 32, it proposes that donations to environmental funds and universities, as well as their own revenues, be excluded from the ceiling.

PEC 34
Presented by senator Leila Barros
Similar to PEC 31, it foresees the approval of a new fiscal regime and, until its approval, authorizes the expenditure of up to R$ 125 billion outside the cap to finance income transfer programs. After the approval of this new tax regime, the ceiling will be revoked. It also excludes donations to environmental funds and universities from the limit imposed by the Expenditure Ceiling.