To pay for works outside the ceiling, Economy defends using privatization money

The Ministry of Economy defends removing public works financed with resources obtained from the privatization of state-owned companies or the sale of shares held by the Union from the scope of the spending ceiling.

The plan is to allow, in an eventual second term, President Jair Bolsonaro (PL) to expand investments, increasingly compressed due to the growth of mandatory expenses in the space given by the ceiling.

Preliminary estimates by the government indicate that the forecast for investments in the 2023 Budget may be in the region of R$ 30 billion. The number can still change until the proposal is sent, at the end of August, but it is considered very low.

The continuous reduction in investments has bothered the president, who is seeking re-election. Last Friday (29), he waved a change in the roof to boost the works in the future. The amendment would be dealt with after the elections.

“Last year, we had an excess of revenue, in the region of R$ 300 billion. You can’t use a penny of that on infrastructure given the constitutional amendment of the ceiling back there. That’s why a lot of people argue that something has to be changed , we will leave it for the future, after the elections, to discuss this issue”, Bolsonaro said last week, in an interview with Rádio Metrópole FM, from Cuiabá (MT).

According to members of the Economy heard by the Sheet after the president’s speech, the idea is to sell state-owned companies or shares of companies that are in the portfolio of banks such as the BNDES (National Bank for Economic and Social Development) and direct the resources to investments and to the reduction of economic inequalities in the country.

One of the aspects is called “national reconstruction”, which would make it possible to invest in public works, such as hydroelectric plants, based on these sales.

According to those involved in the discussions, only non-recurring expenses would be the target of easing and would be left out of the ceiling. This is because, according to the LRF (Fiscal Responsibility Law), privatization resources cannot be used to pay a current expense (such as installments of the new Bolsa Família), except if the targeting is to fund social security benefits.

A PEC (Proposed Amendment to the Constitution) would be needed to remove expenses from the cap rule. The cap was created in 2016 and prevents federal spending from growing beyond inflation.

The government’s interpretation is that the ceiling was designed to prevent the public machine from growing -that is, to limit current expenditures such as civil servants’ salaries and rents-, but that efforts to reduce economic inequalities (such as income transfer programs ) and the transfer of wealth would not need to be limited.

Despite this view, a complete withdrawal of Auxílio Brasil from the ceiling is met with resistance among the members of the economic team.

The fund to receive privatization resources has been studied at least since last year by the Ministry of Economy. In August, the government even included the forecast in a draft of the PEC dos Precatórios, which provided for a percentage of resources to be allocated to the most vulnerable.

According to the proposal at the time, 60% would be used to reduce the public debt. The remainder of the division would be 20% for payment of court orders and 20% for the social area.

But, at the last minute, the economic team backed off from the idea on the grounds that the discussion is complex.

The provision for the creation of the fund remained in the text, but for other purposes. The resources can only be used to reduce the public debt and for the anticipation of payment of precatories to be paid in installments from 2022.

Even so, the use of privatizations to generate resources for the Brazil Fund continued to be defended and has gained Guedes’ attention as the electoral calendar approaches.

To interlocutors, the minister has signaled that linking investments can even help to overcome political resistance to privatization.

In internal negotiations, the new division considered is 50% of the revenues to reduce the debt, 25% for income transfers and 25% for the national reconstruction plan.

Roof change brings Bolsonaro closer to rivals in elections

By defending the expansion of investments and waving towards a change in the spending ceiling, Bolsonaro signals using the same flag raised more drastically by other candidates for the Palácio do Planalto.

Former president Luiz Inácio Lula da Silva (PT), placed first in polls, and former minister Ciro Gomes (PDT) have already spoken publicly about the possibility of overthrowing the ceiling if elected.

Bolsonaro’s allies have been insisting that the ceiling is unenforceable under any government. Therefore, this wing defends an articulation led by the current president to change the rule and allow extraordinary revenues or large collection gains to be directed to investments.

On the other hand, the topic is considered delicate at this time. At Planalto, assistants believe that it is not yet time to talk about changes in the rule.

Among technicians from the Ministry of Economy, there is a perception that the ceiling will be a central theme in economic debates during the election.

Although the ceiling has already been changed by at least five constitutional amendments since the beginning of the Bolsonaro administration, the perception is that the fiscal framework is unsustainable for the coming years.

For 2023, the LDO (Budget Guidelines Law) project provides for R$ 108.2 billion in discretionary expenses, over which the government has greater management. More than R$ 70 billion, however, goes only to the cost and operation of the public machine.

In the following years, the situation is even more dramatic due to the continuity of advances in expenses such as salaries and social benefits.

In 2022, the government has already faced difficulties. Even after an expansion of more than R$ 100 billion in the ceiling, approved in the PEC dos Precatórios, the Economy has had to cut resources from ministries to fulfill mandatory expenses or fulfill political promises, such as granting readjustments to servers.

Change under study

How is it today?

• The spending cap prevents total federal spending from growing beyond inflation

How is the idea?

• Investments or social actions to be carried out with resources from a fund, which would be supplied with money from privatizations or sales of other public assets, would be excluded from the calculation of the ceiling.

What is needed for the idea to take effect?

• A PEC (Proposed Amendment to the Constitution), as the spending cap rule has been in the Constitution since 2016