The government is preparing the most difficult budget in 25 years. what are the dilemmas

Deadline for government to submit PLOA 2022 to National Congress ends Tuesday (31) | Photo: Marcos Oliveira / Senate Agency

The federal government’s economic team is struggling to complete the calculations and hand over to the National Congress the “most difficult budget in 25 years”, as the Special Secretary for the Treasury and the Budget, Bruno Funchal, declared. The deadline for filing the 2022 annual finance bill (PLOA) ends on Tuesday (31). But there are many difficulties in reconciling the interests of the federal government in an election year and balancing the public accounts.

Therefore, the Executive wants to wink at economic agents and demonstrate commitment to fiscal responsibility in a context of “short coverage”. The chances that the spending cap – the country’s main fiscal anchor – will be breached generates distrust in the market. What made the scenario complex, in particular, is the “meteor”, as Minister Paulo Guedes said, of 90 billion reais in court orders that the Union will have to pay next year and that were added to the budget. This is the greatest value in history.

The government considered approving a Constitutional Amendment Proposal (PEC) that would allow the installment of these court debts, easing the 2022 budget and allowing for greater investment in social programs, but ended up forgoing negative repercussions in the judiciary and Congress. Additionally, a PEC requires months of processing in Congress and there was no guarantee of approval at the end of this process.

At the same time, the government is looking for a solution to be able to spend more in an election year, while historically it is increasing contributions to social programs and working to ensure that this pays dividends in the form of votes.

In this sense, the big bet of the Bolsonaro administration is to try to replace Bolsa Família, called Auxílio Brasil, by readjusting the average ticket paid today by the program, by increasing the range of services and the range of beneficiaries. President Jair Bolsonaro has repeatedly signaled the government’s intention to increase the average benefit amount by 50%, currently at R $ 192.

The government also tried to advance a bill derogating from the budget responsibility law (LRF) and modifying the budget orientation law (LDO) of 2021, allowing the commitment of resources still under discussion to direct them towards a social program. That is, even before the funds are obtained. The idea was that resources from income tax reform – which, if approved, should tax dividend distribution, which is currently exempt – at 20%, pay aid to Brazil. The measure did not prosper.

Minister Paulo Guedes has underlined in recent weeks that “there is not the slightest basis, from a strictly economic point of view, to say that Brazil is losing control”.

Not so long ago, the Union celebrated an apparent gap in the spending ceiling of around R $ 20 billion next year. This margin would result from a kind of “inflation premium”, since the correction factor for the 2022 ceiling is the cumulative inflation over 12 months until the last month of June, which was quite high – 8.35% such as measured by the IPCA.

But the government celebrated too soon: apart from the fact that the ceiling margin is subject to variations in the coming months, it depends on the behavior of inflation until December (and, consequently, on its influence on the value of the minimum wage. and a series of compulsory expenditure), the economy has not counted on the increase in debts resulting from court decisions, which fell like a fiscal “bomb” in the bosom of the Union.

No readjustment in Auxílio Brasil and uncertainty over court decisions: how the budget can come

Until recently, Secretary Bruno Funchal said in an interview with “Globo” that the government would include full payment of court orders in the budget, and that it would not readjust the ticket paid by Auxílio Brasil.

“The entire team of the Ministry of the Economy is aligned around the unrestricted commitment to budgetary responsibility and to the respect of the framework of the country’s rules which make it possible to keep the public accounts organized,” he said. he declares.

On Monday, the information was that the government had already abandoned the PEC de precatório. After conversations, Arthur Lira (PP-AL), Rodrigo Pacheco (DEM-MG) and the economic team began to come up with a different solution, led by the National Council of Justice (CNJ) and deemed “more efficient, more rapid and inclusive more legally adequate. “The proposal has not yet been made public, but it is known, so far, that there may be a restriction on payment of up to R $ 40 billion in court orders next year This would take some 50 billion reais out of the budget.

In fact, many analysts believe the PEC is a problem. The measure, in addition to not being a “silver bullet” to solve fiscal problems, could generate almost “insurmountable” economic bottlenecks and serious global problems. As soon as the plan was made public, it was greeted with phrases like “creative accounting” and “tax pedaling” – a practice of deferral of payments that resulted in the impeachment of Dilma Rousseff (PT).

The government must also present a budget with significant cuts in discretionary (non-mandatory) spending.

Possible developments and other concerns

In addition to the court rulings and the increase in aid to Brazil, there are other issues of concern and for which there are still no answers. It is unclear how the income tax reform, inflation behavior, minimum income and the so-called “general rapporteur’s amendments” will impact the budget. The government is also expected to set aside resources for the application of the third dose of the Covid-19 vaccine.

But it is possible to modify the budget even after its approval. And, in the opinion of some interlocutors, the government must do so. “It is inevitable that this [mudança] happen. In fact, it happens every year. There is no way to get exactly an allocation in the Budget “, explains Josué Pellegrini, doctor of economics at USP. This is allowed by the so-called” extra credits “, invoices sent by the Executive. to the Legislature to add an allocation of something already provided for in the budget.

There are also the so-called special appropriations, intended for appropriations that were not initially entered in the budget, which also operate via a bill. And, finally, the extraordinary credits, constituted by provisional measure. “A large part of the expenses related to the pandemic were made thanks to extraordinary credits last year and this year”, recalls Pellegrini.

The specialist also explains that other elements can also be changed in the execution of the budget, such as the budget target. And the most unpredictable change is in the cap, which would require a constitutional provision.

According to the budget orientation law (LDO), mentioned above and which guides the PLOA, 57 programs and 223 actions will be priorities for 2022, among which:

The early childhood agenda; The expenditure of the Casa Verde e Amarela Program intended for municipalities up to 50,000 inhabitants; The National Vaccination Program (PNI); Extension of the cancer care network infrastructure.

Also according to the LDO, the funds allocated to the following areas will not be subject to contingencies:

Resources for the provision and expansion of full-time education Expenditure with the completion of the demographic, agricultural and geographic census, by the Brazilian Institute of Geography and Statistics; Expenses with universal access to the Internet with support for digital inclusion initiatives and projects and; Expenditure with the actions of “Research and development of technologies for agriculture” and “Transfer of technologies for innovation for agriculture”, within the framework of the Brazilian Agricultural Research Company (Embrapa).

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