Fiscal framework: approved project excludes loophole that would allow the government to spend more in 2024

Before the text was voted in plenary, the project’s rapporteur, federal deputy Claudio Cajado (PP-BA), excluded a loophole that would allow the government to increase spending by 2.5% above inflation in the year 2024, regardless of the collection. This would set up an exception for the Executive so that, in the first year of the fiscal framework, it could raise expenses to the limit provided for in the text.

After meeting with party leaders in the afternoon, the rapporteur relented. “It wasn’t exactly what I wanted, but my report never reflected my ideas. It was an agreement we made”, said the deputy.

It was agreed that the limit for the government to spend in 2024 could be increased by supplementary (extra) credit, after the second bimonthly assessment of revenues and expenditures – which should take place in May.

Leonardo Roesler, specialist in tax law, explains that the government may submit to the National Congress the budget bill for 2024, in August, setting the growth in expenses at 70% of the variation in revenue for the last 12 months (until June of this year), and within the expenditure growth range of 0.6% to 2.5% above inflation.

In May 2024, the government will be able to request additional credit from Congress to increase expenses next year, if the Executive observes a positive difference between the estimated revenue increase for 2024 compared to the revenue for 2023.

If, at the end of next year, revenue does not grow as per May estimates, the excess amount will be deducted from the limit that the government will have to spend in 2025.

Roesler recalls that the previous version of the text could give R$ 80 billion more space for the government to spend next year, which came out of the report before the vote. “In May, the difference, if positive, can guarantee additional space for new expenses through this supplementary credit. If the projection is not realized, the government has to return this surplus in the 2025 budget”.

Main points

The project creates a tolerance interval or, as the government has called it, variation bands for the primary result target. The primary result is the difference between what the government collects and spends, excluding the payment of interest on the debt.

According to the text, the primary result target will be considered met even if it varies 0.25% downwards or upwards. For example: for next year, the government estimates a primary result of 0% of GDP. This means that the expectation is for expenses and expenses of the same size. However, if the result is between – 0.25% of GDP (lower band) and 0.25% of GDP (upper band), it will be within the target and, therefore, considered fulfilled.

In 2025, for example, the target is a surplus (accounts in blue) of 0.5% of GDP. The final result may vary between 0.25% (lower band) and 0.75% of GDP (upper band). For 2026, the government expects a surplus equivalent to 1% of GDP, with the lower band set at 0.75% and the upper band at 1.25%.

If it meets the primary result target, the government will be able to increase its spending by up to 70% of the revenue growth obtained in the previous 12 months. That is, if what the government collects from taxes, fees and other sources of revenue increases by R$ 10 billion, the following year it can increase expenditures by a maximum of 70%, that is, R$ 7 billion.

If the balance of public accounts remains below the lower band of the target, the following year the government will only be able to increase expenditure by 50% of revenue growth and no longer by 70%. On the other hand, in a scenario where the result of public accounts is above the upper band of the target, the Executive may allocate up to 70% of the surplus for investments, with priorities for unfinished works or works in progress.

The text also proposes that, regardless of what it collects, the government will be able to spend between 0.6% and 2.5% more than in the previous year, not counting inflation. The spending cap, which will be replaced by the fiscal framework, limited expenditure growth to zero, in practice.

Federal deputy Kim Kataguiri (União-SP) criticized the floor for real growth in expenses. “Obliging citizens to pay the government’s bill even when the economy is going bad is to increase debt, is to increase taxes”.