Senate approves the basic text of the Transition PEC in the first round

The Senate plenary approved in the first round this Wednesday (7) the basic text of the PEC (Proposed Amendment to the Constitution) of the Transition. In yet another test for the elected government, the Senate maintained the text of the CCJ (Commission on Constitution and Justice), amid pressure from the opposition to reduce the impact and duration. The score was 64 votes to 16; 49 were needed.

The proposal expands the spending ceiling by BRL 145 billion in 2023 and 2024 for the payment of Auxílio Brasil (which will once again be called Bolsa Família) and frees up another BRL 23 billion for investments outside the cap in case of extraordinary revenue collection. .

The PEC is the main bet of President-elect Luiz Inácio Lula da Silva (PT) to fulfill campaign promises, such as maintaining Bolsa Família at R$600 and an additional R$150 per child up to six years old. The amount reserved for the program without the PEC is only enough to pay R$ 405 per family.

With R$105 billion left in the 2023 Budget, Lula hopes to recompose programs such as Popular Pharmacy and Minha Casa, Minha Vida, and readjust the minimum wage above inflation. The distribution of the amount, however, will be defined not only by the elected government —as envisaged in the initial proposal—, but also by Congress.

The text’s rapporteur, Alexandre Silveira (PSD-MG), stated that the “said market” reacted well to the proposal that came out of the CCJ. Silveira reinforced the elected government’s commitment to submitting a new fiscal framework by August of next year, in addition to a tax reform.

“We had peace of mind in those 24 hours because Brazil understood the need to expand these resources as the minimum required by the future government to serve the people who need it most in this country”, he said in the plenary.

The text coming out of the Senate also allows funds that have been sitting in the PIS/Pasep accounts for at least 20 years to be appropriated by the National Treasury, and used to finance investments outside the fiscal rule that limits the growth of expenses.

In August, Caixa Econômica Federal reported that there are R$ 24.6 billion in PIS/Pasep quotas. The version approved by the Senate provides for an extra BRL 168 billion – adding up the quotas and other amendments included, the proposal could release more than BRL 200 billion for the future government.

The notice of appropriation of PIS/Pasep resources must be published in the DOU (Official Gazette). If the “possible legitimate interest” does not claim the money within 60 days after publication in the DOU, the accounts will be closed. The interested party may request reimbursement from the Union within a period of up to five years from the closing of the accounts.

The device that includes the PIS/Pasep was not in Silveira’s initial report and was included at the suggestion of Senator Fernando Bezerra (MDB-PE), former leader of the government of Jair Bolsonaro (PL) in the Senate.

Bezerra told the Sheet that the change is “neutral” from a tax point of view. “First there will be revenue creation and then investment expenses that are exceptionalized from the ceiling. From a tax point of view it is neutral. The market reaction today [nesta quarta] It was very good in relation to the PEC.”

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. the lock that this measure would only be valid from 2023.

With that, there is room for the government of Jair Bolsonaro (PL) to release parliamentary amendments that are blocked because of the fiscal tightening. The articulation to use Lula’s PEC to unlock the amendments of Bolsonaro’s allies was revealed by Sheet in November.

Silveira denies that he participated in the negotiation of amendments. According to him, the anticipation was included so that the current government can close the accounts – the Ministry of Economy fears the real risk that there is a lack of money, including for the payment of pensions.

“If we were not approving today in this same PEC the possibility of the current government taking advantage of R$ 20 billion to close its fiscal year, this government would have a fiscal gap, at its limit, of R$ 16.8 billion”, he said in the plenary.

“In other words, in the numbers calculated and well calculated by the transition, we need, in order to have the same budget execution as in 2022, R$ 140 billion for next year. This, we are saying, to comply with the Brazilian men and women who need Brazil Aid.”

The PEC also removes from the spending ceiling expenses of federal educational institutions funded by their own revenues, donations or agreements entered into with other entities of the Federation or private entities.

The last version of the report presented by Silveira also extends the measure to all research institutions and to Embrapa — the previous text mentioned only Fiocruz (Oswaldo Cruz Foundation). Donations made to environmental funds are also excluded from the ceiling.

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

• Raises spending cap by R$145 billion to pay for Bolsa Família
• There is a loophole to release rapporteur amendments in 2022
• Allows you to use BRL 23.9 billion for investments outside the cap
• Expands by BRL 145 billion the spending ceiling in 2023 and 2024 to accommodate social expenses (amount is fixed, not 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 precatories 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)