License to spend: perceive the details of the Transition PEC
- November 22, 2022
- No Comment
The elected government delivered to the parliamentarians the text of the so-called PEC (Proposal for Amendment to the Constitution) of the Transition, which intends to change fiscal rules and make viable the maintenance of social programs and the fulfillment of promises made by Lula (PT) during the electoral campaign, how to guarantee the payment of the R$ 600 of the Auxílio Brasil, which will be renamed Bolsa Família.
The proposal provides for the indefinite withdrawal of Bolsa Família from the spending ceiling — a rule that limits the growth of government expenses to the previous year’s Budget plus correction for inflation — and allows the government to spend around R$ 200 billion in 2023 above the expenditure limit. The document, presented by vice-president-elect Geraldo Alckmin (PSB), also creates the possibility of expanding investment expenses when there is extra income. Understand below:
License for to spend. The PEC is a way of trying to make room in the Budget and would serve as an alternative to breaching the spending ceiling.
In the Budget presented to Congress in August, the government of Jair Bolsonaro (PL) proposed a value of BRL 105 billion for the payment of the Brazil Aid, an amount that would only cover BRL 405 per beneficiary next year.
The next government is seeking a license to make extra expenses to guarantee the maintenance of the value of the benefit at R$ 600 for the 21 million people registered in the program, in addition to making possible other promises made by Lula.
The PEC serves to amend points of the Federal Constitution. To be approved, it needs to be voted on in two shifts in the Senate and in the House and needs to be approved by three-fifths of the deputies (308) and senators (49).
What is the value of the PEC? The initial proposal calculates that up to R$ 198 billion should be outside the spending ceiling.
This account includes estimates for Bolsa Família and for an amount called “excess current revenue collection”. Values include:
- R$ 105 billion already reserved to pay the Brazil Aid in 2023 (corresponding to the amount of R$ 405 per beneficiary);
- BRL 52 billion needed for the benefit amount to reach BRL 600 to the 21 million beneficiaries;
- BRL 18 billion to cover the cost of the promise to give BRL 150 more per child up to six years old to the families of the Auxílio Brasil program. The PT estimates that there are around 9 million children eligible for the benefit;
- up to R$ 23 billion from possible higher-than-expected collections.
Term of duration. The text presented proposes to remove Bolsa Família from the spending cap account for an indefinite period, but this has not yet been defined. A group of congressmen wants this to be limited to 2023 and the PT is negotiating for the deadline to be at least until 2026, during the Lula government.
Bolsa Família alone represents BRL 175 billion per year of the approximately BRL 200 billion above the estimated limit for expenses.
Opening of fiscal space. By taking Bolsa Família out of its spending ceiling, the PEC would allow the money that is already reserved in the 2023 Budget to be used for other actions considered priorities by Lula, such as paying for the readjustment of the minimum wage above inflation, increasing transfers to the program school lunch program, recompose the budget for Farmácia Popular and invest in works at Casa Verde Amarela, which will be renamed Minha Casa, Minha Vida.
Expansion of public investments. The PEC provides for the possibility of expanding expenditure on investments, such as public works, when there are extraordinary revenues, such as taxes and pre-salt royalties in excess of what was foreseen.
Space in the budget would be opened through a heading called “expenses with investments in an amount that corresponds to the excess collection of current revenues” for 2021 and “limited to 6.5% of the excess collection”.
For example: the budget law expected to collect R$ 10 with a certain revenue, but at the end of the year it collects R$ 15, so the excess collection is R$ 5.
The PEC says that this excess could not be completely outside the spending ceiling. By limiting it to 6.5%, the proposal places a “lock” to control the use of the extra revenue.
According to Lula’s team’s calculations, this 6.5% relative to the excess collection of current revenues in 2021 is equivalent to R$ 23 billion.
Education. The proposal also removes from the expenditure ceiling amounts related to “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 justification is to encourage fundraising through partnerships and donations.
Environment🇧🇷 The text of the PEC also determines that donations to “socio-environmental projects or related to climate change” within the scope of the Executive Branch and to federal educational institutions also remain outside the spending cap.
Created to finance forest preservation actions, the Amazon Fund receives donations from Norway and Germany. This money is managed by BNDES, which makes, for example, partnerships with NGOs and they work with Ibama. As such, fund money is not accounted for under the spending cap rule.
The PEC plans to change that. Under the proposal, the BNDES will be able to finance Ibama projects without affecting public accounts. Thus, Ibama will be able to decide quickly on its priorities.
The Amazon Fund has R$ 3.6 billion in the account, which was frozen during the administration of Jair Bolsonaro (PL). European countries have already signaled that they intend to resume financial aid to Brazil.
The same goes for other federal agencies in the environmental area, such as INPE, which monitors deforestation. They would have autonomy to raise donations.
Procedure. Lula’s team handed congressmen a draft, that is, the draft of the proposal, which needs to be officially presented by a congressman. Once filed, the proposal may undergo changes.
Negotiation is for the proposal to begin processing in the Senate, where the rite is simpler than that of the Chamber. All procedures must be completed this year, before the parliamentary recess.
The transition team says that it is possible to approve the PEC by December 17th, but the PEC has been the target of great conflict and disagreements.
Stamina points are not restricted to the size of the license to spend or the time limit. They are amplified by the wishes printed in the draft of the PEC and in the statements by President-elect Lula that he intends to bring down the spending ceiling, without making it clear what the country’s fiscal anchor will be and who will command the Ministry of Finance.
The vice-president-elect Geraldo Alckmin (PSB) assured that there will be fiscal responsibility in the next government and defended that the Lula government starts the mandate with cost cuts and approval of reforms.