Rapporteur reduces exceptions and places state-owned companies and the nursing floor under the framework limit – 05/16/2023 – Market

1970-01-01 02:00:00

The rapporteur for the new fiscal framework, Deputy Cláudio Cajado (PP-BA), restricted the list proposed by the government of expenses that will fall outside the new spending limit to be followed by the Executive.

According to the opinion, expenses with contributions in state-owned companies, transfers to states and municipalities to pay for the nursing floor and Fundeb (basic education fund) will also be under the expenditure ceiling.

In practice, this means that these policies will compete for space in the Budget with other programs, and their eventual faster growth may require cuts in other areas —which works as an incentive for the government to keep them under control.

Federal aid to the security forces of the Federal District through the FCDF (Constitutional Fund of the Federal District) will also come under the scope of the new fiscal framework, according to the new text.

In an interview with Sheet at the beginning of the month, the rapporteur had already criticized the high number of exceptions to the rule provided for by the government of Luiz Inácio Lula da Silva (PT). The original text, prepared by the team of Minister Fernando Haddad (Finance), provided for 13 categories of expenditure outside the ceiling.

The government even considered keeping investments in state-owned companies under the spending ceiling, but ended up giving up and placing only financial companies (such as public banks) under the umbrella of the new framework. Now, the rapporteur foresees in his text that the injection of resources in all these companies –financial or not– will need to follow the expenditure limit.

With the changes, the framework opinion has nine exceptions. Among the expenses that remain outside the scope of the new rule are constitutional transfers by sharing tax revenues, extraordinary credits (aimed at releasing urgent and unforeseen expenses) and non-recurring expenses to finance the holding of elections.

Expenses for repairing disasters financed with resources from donations and agreements, as well as expenditures by federal public universities, public companies linked to the Ministry of Education and other specific institutions that are borne with their own revenues or through agreements, also continue to be exceptional.

Revenues

In another point of the text, the rapporteur made changes in the revenues that can be considered in the calculation of the framework – and that determine how much the expenses can grow (in general, the rule proposed by the government is that, the more revenue, the more expenses can be released the following year).

So that extraordinary gains in a given year (for example, with the concession of an area for oil exploration) do not influence the accounts too much, the government had proposed a list of exceptions to the calculation of revenues.

The government proposed taking all revenue from concessions and permits, dividends and participations paid by state-owned companies, and gains from the exploitation of natural resources (which mainly comprises oil royalties) – in addition to the account with constitutional transfers made to states and municipalities.

The rapporteur kept these items on the list of exceptions and even added revenue with special fiscal recovery programs that are intended to regularize the situation of debtors and generate resources for the Union.

Investments

Cajado also restricted in the text the size of the so-called “investment bonus”, extra expenses that the government could contract if it obtains a primary result above expectations.

In the original project, the excess revenue in relation to the primary target could be used, in a single way, to finance works and other investments without affecting the expenditure limit. There would only be a temporary limit, equivalent to BRL 25 billion (adjusted annually for inflation), valid until 2028.

Now, the rapporteur predicts that only 70% of the excess revenue can be directed to investments — the remaining 30% would remain as a positive balance in the accounts, contributing to the reduction of the public debt.

In addition, the text says that the expansion of these appropriations, based on the bonus, cannot exceed the equivalent of 0.25 percentage points of GDP for the year prior to the preparation of the Budget.

As the rapporteur is leaving the list of exceptions to the spending limit:

1. Constitutional transfers to states and municipalities by way of tax distribution

2. Extraordinary credits, released in unpredictable and urgent cases (such as those resulting from war, internal commotion or public calamity)

3. Expenses funded with funds from donations or judicial or extrajudicial agreements signed due to disasters

4. Expenses of universities and federal institutions, and public companies of the Union providing services to federal university hospitals, when funded with own income, donations or agreements

5. Expenses incurred with funds arising from transfers from other entities of the Federation to the Union intended for the direct execution of works and engineering services

6. Expenses with precatories agreements to be paid with discount

7. Account matching operations with precatories

8. Non-recurring expenses of the Electoral Court with holding elections

9. Legal transfers to states and municipalities of resources obtained from forestry concessions

What the rapporteur took from the list of exceptions proposed by the government

• Expenses with contributions to non-financial state-owned companies
• Transfers to states and municipalities to fund the nursing floor
• Fundeb (basic education fund)
• Federal aid to the security forces of the Federal District through the FCDF (Constitutional Fund of the Federal District)

Other rapporteur changes:

• Adds to the list of exceptions for the calculation of revenues the special tax recovery programs that are intended to regularize the situation of debtors and generate resources for the Union.
• It now predicts that only 70% of the excess surplus can be directed to investments