Rapporteur of the fiscal framework includes measures to limit spending, in case the government fails to meet targets

Cajado said that the Chamber of Deputies should vote on the urgency regime for processing the project this Wednesday (17). The parliamentarian stated that the report was well received by party leaders and that the final version should be appreciated by the plenary of the Chamber on May 24th.

“I have a positive expectation. In the college of leaders, it was clear that the text has support. It was very well received. We discussed exhaustively and the government itself advanced in the negotiation and agrees with the text that was presented”, he pointed out.

Main points

The main rules that the Ministry of Finance proposed for public accounts were maintained by the rapporteur, Cláudio Cajado. 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.

The Executive proposes that the primary result target 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).

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.

fit measurements

The rapporteur added some adjustment measures, also known as prohibitions or even “triggers”, for situations in which the government does not meet the primary result target.

Assume a scenario in which the Executive does not reach the primary result target in 2023. Under the framework proposed by the Ministry of Finance, in 2024 the government could only increase expenditures by 50% of revenue growth and not by 70%, if it complies with the goal. But in addition to this punishment, Cajado proposed that, in the first year of non-compliance, the Executive be prevented from:

• Create positions, jobs or functions that imply an increase in expenses;
• Change the career structure that generates expense growth;
• Create or increase aid, such as Bolsa Família, advantages and benefits of any nature;
• Create mandatory expense;
• Take a measure that implies a mandatory readjustment of expenses above the inflation variation (with the exception of the minimum wage, which may increase above the IPCA);
• Create or expand programs and lines of financing, remission, renegotiation or refinancing of debts that generate expansion of subsidies and grants;
• Grant or expand tax incentives or benefits.

Triggers are valid for one year. If in the following year the primary result target is reached, the measures automatically cease to be valid. The text also provides that the President of the Republic may propose to the National Congress the partial suspension or gradation of the adjustment measures, “demonstrating that the impact and duration of the measures adopted will be sufficient to correct the deviation”.

If the government fails to meet the primary result target for the second consecutive year, other prohibitions will be added, such as granting increases and readjustments in personnel expenses; admission or hiring of personnel, except in the case of replacement of vacant positions and holding of a public tender, with the exception of replacement of vacant positions.

“I believe that the text is very good for the government, for society and for what we want to achieve, the trajectory of the debt, each time in a firmer way, with the consequent fall in interest rates, because it is clear that the pursuit of fiscal target is an objective that does involve sanctions and punishments if the government does not act within the parameters that we are setting in this fiscal framework”, pointed out Cajado.

The text sent by the government made the contingency of resources optional in case of non-compliance with the goal, but Cajado made the measure mandatory in the bill. In addition, the revenue and expenditure assessment reports should be published bimonthly, as is currently the case, and not quarterly, as proposed by the Ministry of Finance.

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