Tax framework: rapporteur includes trigger for non-compliance with rules

Called a Sustainable Fiscal Regime by the rapporteur, the proposal provides that, in the event of non-compliance with the targets, there will be contingency (blocking) of discretionary expenses. Cajado’s text establishes the adoption, in the year following the non-compliance, of automatic measures to control mandatory expenses, such as not granting a real increase in mandatory expenses, suspending the creation of new public positions and suspending the granting of benefits above of inflation.

If the non-compliance happens for the second consecutive year, new prohibitions will be added to the existing ones, such as the increase of salaries in the civil service, admission or hiring of personnel and public tenders (in the last two points, the exception is for replacement of vacant positions) .

Control measures

In situations where mandatory expenses exceed 95% of primary expenses (which exclude interest and amortization), control measures are also triggered automatically. According to Cajado, the real readjustment of the minimum wage will be out of the triggers, with an increase above inflation. The exclusion was negotiated with leaders of government base parties and the rapporteur, at the request of President Luiz Inácio Lula da Silva.

Initially, there was also a forecast to remove Bolsa Família from the spending limit. The deputy explained that the benefit will also be subject to general rules for it to be readjusted above inflation. “I didn’t say that I was going to be exceptional, (but) that I was preserved. Exceptional was in sealing the sanction for non-compliance with the goal, the minimum wage”, said the parliamentarian.

Cajado also included the possibility that the Executive Branch requests the partial suspension of some of the measures, if it is verified that the measures maintained are sufficient to compensate for non-compliance with the target. To do so, it must submit a bill for analysis by the National Congress.

The rapporteur’s prediction is that the text will be approved by a large margin by the deputies, with the prospect of 464 votes in favor of the text. “We are creating a cost control rule here. The priority that the government will give depends on it,” said the deputy.

New tax rules

The proposal makes greater government spending conditional on the achievement of primary result targets, seeking to contain public debt. According to the text, the target should fluctuate between -0.25% to +0.25% of the real growth of the economy in the previous year. According to the Budget Guidelines Law of 2024, the targets for the next year, 2025 and 2026 will be, respectively, 0.0%, 0.5% and 1.0% of the Gross Domestic Product (GDP), with a band of 0.25 %.

The text sent to the National Congress by the government foresees the expenditure growth limit 70% of the change in revenue for the previous 12 months. That is, if in the 12-month period, from July to June, the government collects R$ 1 trillion, it will be able to spend R$ 700 billion.

Within that 70% percentage, there will be an upper limit and a floor, a band, for the oscillation of expenditure, discounting the effect of inflation.

In times of greater economic growth, expenditure cannot grow by more than 2.5% per year above inflation. In times of economic contraction, spending cannot grow more than 0.6% per year above inflation.

Bills

To prevent non-compliance with the 70% revenue growth target, the new rules will introduce punishment mechanisms that will slow down spending if the growth trajectory of expenses is not met.

If the primary result falls below the lower threshold of the band, then next year’s expense growth drops from 70% to 50% of revenue growth. In order not to discontinue investments (public works and purchase of equipment), the new framework provides for a floor for this type of expenditure and allows that, if the primary surplus is above the ceiling of the band, the surplus is used for public works.

The economic team clarified that the 70% threshold is based on past revenues, not on estimated future revenues. In this way, future governments, or the National Congress, will not be able to artificially increase revenue forecasts to raise expenditures.

*Expanded article at 11:51 am for additional information.