House to conclude vote on new tax rules this Wednesday

The plenary of the Chamber of Deputies continues this Wednesday (24) the analysis of the proposal that establishes new fiscal rules for the expenses of the Union, the so-called fiscal framework. The measure will replace the current spending cap. The basic text was approved last night by 372 votes in favor, 108 against and one abstention. To conclude the procedure in the Chamber, the deputies still need to analyze the highlights, which can still modify parts of the proposal. Once the vote is completed, the matter goes to the Senate. According to the President of the House, Rodrigo Pacheco (PSD-MG), the measure should be analyzed by the senators this semester. Main points The rapporteur for the project, Deputy Cláudio Cajado (PP-BA), established triggers to force the cut and containment of expenses in the event of non-compliance with the fiscal target. The proposal establishes the so-called band system for the primary result, established in the Budgetary Guidelines Law (LDO), approved annually, and criteria for the correction of public expenditures. The model provides for a floor and a ceiling for government spending. In the first version of the text, Cajado had proposed the direct application of the real expenditure growth limit of 2.5% for 2024. The text was modified after agreement between party leaders to condition growth to the year’s revenue performance. Each year there will be limits on primary expenditure readjusted by the Extended National Consumer Price Index (IPCA) and also by a percentage of how much primary revenue has grown after discounting inflation. The new fiscal framework will limit expenditure growth to 70% of the previous 12-month revenue change. For next year, the period considered for the correction of expenses will be July 2022 to June 2023. According to the rapporteur, the measure will allow the application of the new rules in the 2024 Budget, with an amount already realized. The government had proposed considering only the 2023 inflation, making an estimate for the annual value. In times of economic contraction, spending cannot increase by more than 0.6% per year above inflation. In this way, public spending growth is limited to 50% of government revenue growth if the target is not met From 2025 onwards, the limits for each year will be found using the previous year’s limit adjusted for inflation plus the variation revenue, always obeying the lower (0.6%) and upper (2.5%) limits. Triggers Called a Sustainable Fiscal Regime by the rapporteur, the bill provides that, in the event of non-compliance with the targets, there will be contingency (blocking) of discretionary expenses. The Cajado project establishes the adoption, in the year following the breach, of automatic measures to control mandatory expenses, such as not granting a real increase in mandatory expenses and suspending the creation of new public positions and the granting of benefits above 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 wages 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) . According to Cajado, the real readjustment of the minimum wage will be out of the triggers and will increase above inflation. Initially, there was also a forecast to remove Bolsa Família from the spending limit. However, the deputy kept the benefit subject to general rules for it to be readjusted above inflation. The Fund for the Maintenance and Development of Basic Education and the Valuation of Education Professionals (Fundeb) will also be subject to spending limit rules. The point was one of the disagreements between the parliamentarians during the vote, who defended the inclusion of the Union supplement to the fund in the exceptions of the proposal. Punishment The approved text does not criminalize public managers. Currently, non-compliance with contingencies and triggers is considered a violation of the Fiscal Responsibility Law. *With information from the Chamber Agency

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