Senate committee approves PEC lasting 2 years and impact of BRL 168 billion

In the first articulation test of the elected government, the PT managed to approve this Tuesday (6) the PEC (Proposed Amendment to the Constitution) of the Transition – but with a lower value and shorter time for the presentation of a new fiscal rule.

The proposal approved by the CCJ (Constitution and Justice Commission) of the Senate removes the Auxílio Brasil (which will be renamed Bolsa Família) from the spending ceiling for a period of two years and reduces the fiscal impact to R$ 145 billion —R$ 30 billion less than that presented by the rapporteur.

The PEC also provides for an additional BRL 23 billion for investments outside the ceiling in case of extraordinary revenue collection. In practice, the proposal raises the extra expenditure to R$ 168 billion.

The text was approved by the CCJ in a symbolic vote, without counting the votes. The proposal now depends on the approval of 49 of the 81 senators in the plenary in two shifts. The session is scheduled for this Wednesday (7).

The final version approved by the committee represents a partial victory for the future government. Congressional leaders even articulated reducing the term of the PEC to just one year instead of four years —the entire term of President-elect Luiz Inácio Lula da Silva (PT).

However, the two-year period already grants budgetary relief at the start of the Lula 3 administration. Still without a faithful political base in Congress, the PT’s strategy was to seek support for the PEC based on promises and signals to parties that are trying to gain space on the Esplanada Ministries, such as PSD, MDB and União Brasil.

Lula’s allies estimate that they have between 54 and 55 votes in the plenary – 49 are needed. The Podemos bench said that it will try to reduce the PEC’s term from two years to one year this Wednesday. In that case, the group will also need the support of 49 senators.

“There is almost unanimity among senators that [o prazo] two years is consistent”, said the rapporteur of the text, senator Alexandre Silveira (PSD-MG), after approval.

“The Chamber is completely independent. It is a House that has its leaders, but it seems to me that there is a great synergy with most of the leaders of the Chamber.”

“The most important thing is for us to have the approval of the principal”, stated senator Rogério Carvalho (PT-SE). 🇧🇷[Hoje]a university provides a service, [e o valor] it has to be subordinate to the ceiling. There are a number of things [na PEC] that opens space for the country to breathe and generate jobs.”

The vote on the CCJ took place by agreement after the elected government agreed to reduce the estimated amount for payment of the social benefit and send a new fiscal framework by August 2023. The report presented by Silveira provided for submission by December 2023.

The proposal was put by Senator Jaques Wagner (PT-BA) to the members of the CCJ after a conversation with Silveira and Lula. Wagner stated that the future government was willing to reduce the value of the fiscal impact of the PEC, but would fight for its two-year duration.

“I went to talk to the president-elect and tell him what were the propositions that were here. The sending of the new fiscal framework has already been agreed, and we have reduced [o prazo para apresentação]”, Wagner told the senators.

“We agreed with the reduction of BRL 30 billion. Evidently, the new team preferred that the reduction not be of BRL 30 billion, but of BRL 20 billion. accept R$ 30 billion”, he added.

Transition economists had already declared that an additional R$135 billion to R$150 billion would be enough to honor the PT’s campaign promises. 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 text does not put a stamp on the value of R$ 145 billion. If Lula spends less on the social program, he will be able to use the remainder of that amount in other areas. The model is of interest to the PT, which already sees difficulty in implementing the additional per child in the first months of government.

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.

Another device allows for additional investments when there are extraordinary revenues, up to a limit of BRL 23 billion — so, in practice, the extract reaches BRL 168 billion. The rapporteur removed the ban that this measure would only be valid from 2023.

With that, according to technicians and party leaders, there is room for the device to take effect this month and release resources in the Budget for rapporteur amendments – controlled by the top of Congress and used as a bargaining chip in political negotiations.

Before the CCJ session, Silveira denied that he had participated in negotiations to unlock rapporteur amendments. According to him, the anticipation was included so that the current government can close the accounts —as shown by the Sheetthe Ministry of Economy fears the real risk that there is a lack of money, even for the payment of pensions.

“I had no participation in these negotiations on what they call the secret budget, and I call the rapporteur’s amendments. What is in the report, in fact, is to discuss in the CCJ values ​​to close this year’s fiscal year because there is a deficit This government does not have numbers to close the country from a fiscal point of view and this is very serious.”

By excluding Bolsa Família from the ceiling, the BRL 105 billion currently reserved for the program in the 2023 Budget (within the ceiling) can be redistributed to other areas. The amount was sufficient, however, only for the monthly payment of BRL 405 per family — the current amount being BRL 600.

The Transition PEC also includes the gas voucher in the list of programs that are exempt from tax compensation next year. The benefit worth R$ 110 for the purchase of cooking gas ends this month.

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 value high.

“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.

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.

The extra spending deepens the negative result in the public accounts expected for 2023, if there is no increase in revenue or cut in expenses sufficiently. 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.

REPORT POINT TO POINT

• Does not remove Bolsa Família from the spending cap
• There is a loophole to release rapporteur amendments in 2022
• Allows you to use BRL 23.9 billion for investments outside the cap
• The BRL 145 billion increase is a fixed nominal value for 2023 and 2024, not being incorporated into the calculation basis and not being readjusted by the IPCA each year
• Congress will be free to allocate the open ceiling space as it sees fit.
• Changes the index of the total amount of precatories to be paid. 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
• It provides that the Executive will submit a new proposal for a fiscal rule by August 31, 2023. When this new rule is approved (by complementary bill), the current ceiling will be revoked from the Constitution. Approval of a complementary bill is easier (needs fewer votes) than a PEC (proposed amendment to the Constitution)