what changes in public debt and spending limits

The proposed amendment to the Constitution No. 23/2021, known as the PEC of the precatório, has a vote scheduled for Tuesday (30) in the Committee on Constitution and Justice (CCJ) of the Senate. According to President Rodrigo Pacheco (PSD-MG), if the text passes before the CCJ, it will bring the proposal “immediately” to the plenary session of the Senate.

Sent by the Executive to Congress in August, the PEC was approved in the Chamber of Deputies on November 9. In the Senate, 40 amendments were presented, of which 13 were accepted by the rapporteur of the proposal and Leader of the Government in the Senate, Fernando Bezerra Coelho (MDB-PE).

The government’s stated goal with the PEC is to increase funding for the Auxílio Brasil program, which replaces Bolsa Família, which, in the budget prepared by the economic team, had expenditure estimated at R $ 34.7 billion, practically the same amount as its predecessor.

Under pressure from President Jair Bolsonaro for an allowance of R $ 400 per family, the PEC, which previously only provided for changes in the payment of court decisions, also began to propose a new corrective rule for the spending cap. , the country’s main budgetary anchor. .

Together, these two changes will open up fiscal space for spending of around R $ 106 billion in 2022, according to the government:

62.2 billion reais will come from a modification of the expenditure ceiling correction rule; eR $ 43.8 billion will come from the postponement of payment of part of the court orders that are expected to be paid in 2022.

Below, discover the main questions and answers about the PEC of court orders:

What are the court orders?

The precatório are debts resulting from court decisions and which are no longer subject to appeal, because they have already become final, that is to say, they have passed through all the courts and are no longer subject to appeal. there is no more appeal.

These debts can arise from disputes over wages, pensions, pensions and allowances, as well as issues relating to expropriation and taxes, for example.

What has been the growth in spending on court orders in recent years?

In 2010, the Union spent 14.3 billion reais from the budget to settle court decisions. The account reached BRL 18.9 billion in 2014 and has grown faster since then.

In 2021, the federal government will have to pay 55.5 billion reais in debt of this nature. The highest value in the historical series is that of 2022, the year in which the Union has 89.1 billion reais to pay.

What does the PEC offer in relation to the Union precatoria?

The PEC proposes to limit the payment of court decisions until 2036 to the same index used to correct the expenditure ceiling, taking 2016 as the first year.

Thus, the amount of 89.1 billion reais that the Union would have to pay out with the debts ordered by the courts next year would decrease to about 40 billion reais. The precatório not paid in 2022 will have priority in the following years, in chronological order.

The text of the PEC approved by the House asserts that there will be a limit for the issuance of the precatório itself – and whoever does such an issuance, informing the executive of the need to pay this expense, is the judiciary.

According to the PEC, “the National Council of Justice will regulate the performance of the presidents of the competent courts to comply with this article”, referring to the article which defines the limit for the annual payment of court orders.

What does the PEC offer in relation to the spending limit?

PEC 23/2021 provides for a modification of the expenditure ceiling correction formula, which limits the growth of public spending to the inflation correction. This change was scheduled for 2026, but with the approval of the proposal, the measure will be brought forward.

Today, the annual correction of the Union’s primary expenditure ceilings is carried out on the basis of the general consumer price index (IPCA) accumulated until June of the previous year. With the PEC, the correction is made by the INPC accumulated in 12 months until December.

The President of the Republic for the 2026 financial year is prevented from modifying the method of correcting the ceiling again, since the revision has been brought forward.

Meeting of accounts, agreement with creditors, securitization of receivables

According to the rapporteur’s current text, creditors of Union debts, including those acquired from third parties, can choose to use the credit to which they are entitled to:

Repay debts in installments or registered as active debt of the Federal State; Buy public real estate; Pay for the granting of public service delegations to the Union; Acquire the participation of the Union; of excess oil in oil sharing contracts.

The PEC also allows for a collection of accounts between the Union and subnational entities that are empowered to receive resources related to debts of this nature, so that credit resulting from court-ordered debt can be used to amortize debts. overdue and expiring from the creditor. . The rule applies to related debts:

Refinancing of non-tax debts; Contracts in which a guarantee has been provided by the debtor to the creditor; Instalments ; Obligations arising from non-compliance with responsibility or misuse of resources.

In addition, creditors of court decisions who are ultimately unpaid due to lack of margin in the Budget for a given year can choose to receive the credit with a waiver of 40% of the total amount.

Another element provided for in the PEC is the possibility of securitization of active debts deemed difficult to collect. That is, the Union will be able to sell the right to receive debt securities at a discount (discount) on the market.

Which court decisions will have priority of payment?

The priority of payment will be what are known as small value claims (VPNs), which are debts of up to R $ 66,000. The total of these debts is estimated by the government at 20 billion reais. Subsequently, debts owed to the elderly and seriously ill people must be paid.

After agreements, the proposal also began to consider in the priority list the precarious linked to the former Fund for the maintenance and development of elementary education and the enhancement of education (Fundef). In 2022, four states are entitled to receive around R $ 16 billion in court orders related to Fundef.

The PEC predicts that 40% of Fundef’s court orders will be paid by April 30, 2022, 30% by August 31, 2023 and the remaining 30% by December 31, 2024. At least 60% of the amount owed by the federal government – about 9.6 billion reais – is to be transferred to educational professionals, including retirees and retirees, in the form of an allowance. Finally, payment must be made in chronological order.

Are the changes only valid for the 2022 budget?

The PEC changes the system for paying court orders until 2036. In addition, if approved, this will also affect the 2021 budget – with the update of the parameters, fiscal space of up to R $ 15 billion would be opened in the federal budget. This year.

The proposal also “buffers” these possible additional resources from 2021 and determines that they are exclusively intended for expenditure related to the vaccination against Covid-19 and for emergency and temporary actions of a socio-economic nature. In the latter case, the funds could be used to pay Brazil Aid.

Where will the resources made possible by the CEP be used?

Concretely in 2022, according to the proposal, the fiscal space produced by the modification of the correction of the ceiling should be used for:

Extension of social programs to combat poverty and extreme poverty, in particular the Auxílio Brasil program, which began on November 17; Readjustment of inflation on general Union expenditure; Compliance with the individualized limits and sub-limits resulting from the new calculation of the expenditure ceiling, which cover the individual limits of the Powers and autonomous bodies and the minimum to be devoted to Public Health Actions and Services; Other Social Security expenses, covering the areas of Health, Social Security and Social Assistance.

Regarding the possible space that can be opened in the 2021 Budget, the PEC links the resource to expenses related to the vaccination against Covid-19, to social security and emergency expenses and to temporary actions of a socio-economic nature.

What does CEP determine about Brazil’s aid?

In his report, Fernando Bezerra asserts that the need to open up fiscal space within the limits of the expenditure ceiling is “indisputable” to house a new “robust” social program.

The congressman determines that Auxílio Brasil will be of a permanent nature and asserts that, with the eventual approval of the proposed amendment to the Constitution, it will be possible to pay a floor of R $ 400 to beneficiaries. The document does not specify the percentage that should be allocated to the program, but the government hopes to allocate at least 50% of the resources made possible by the PEC to Auxílio Brasil.

“If approved, the proposal under consideration will help increase the number of families that will be supported by the Programa Auxílio Brasil from 14.6 million to 17 million,” Bezerra said.

“The 16.4% increase in the coverage of Auxílio Brasil means that the waiting list of people registered with Cadastro Único, better known as CadÚnico, and eligible for financial assistance from the federal government, will be removed. . With this, around 50 million Brazilians, or almost a quarter of the population, will benefit from government support to escape poverty or extreme poverty, “the MP wrote in his opinion.

However, the rapporteur specifies that it is not possible to define the source of funding for the program from fiscal year 2023. Its text obliges Congress to create, by December 31, 2022, a law defining the limits , the conditions and rules for accessing the benefit.

The Commission will monitor the evolution of court decisions to avoid “surprises”

According to the current text on the matter, the Congress should create, within one year after the promulgation of the PEC, a mixed commission in charge of following the evolution of the precatoria of the Union.

“The commission should act in cooperation with the National Council of Justice, which can request information and documents from any power in the Union, states, federal district and municipalities,” says the PEC.

The measure aims to avoid “surprises” in relation to the amount of debt, as would have occurred this year. The Minister of the Economy, Paulo Guedes, declared to have received as a “meteor” the report of the amount of precarious orders of the Union, of 89.1 billion reais, for the financial year 2022.

Still to facilitate the Union’s response to court decisions, the PEC is modifying the deadline for sending the list of debts to the Ministry of the Economy by the judiciary. The limit will be extended from July 1 to April 2 of each year.

Read the full opinion on the PEC of court orders

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