A proposal formulated by the government with an expenditure forecast within the limit of the expenditure ceiling, the 2022 Budget is under pressure for more resources due to demands from the political class and the advance of inflation.
Considering these two factors, there is a potential overflow of R$72 billion in the constitutional rule that prevents the growth of federal expenditures above inflation.
The numbers were compiled by Samuel Pessôa, a researcher at the Brazilian Institute of Economics at FGV (Getulio Vargas Foundation), based on calculations by economist Marcos Mendes —both columnists for the sheet.
The pressure for resources is at the center of discussions to make the payment of R$ 89.1 billion in court orders more flexible in 2022 and, thus, make room for other measures.
The list of demands compiled by Pessôa was published in an article in FGV’s Conjuntura Econômica magazine, and considers up to R$ 20 billion extra to expand Bolsa Família in 2022. This is the government’s main bet to try to increase President Jair’s popularity Bolsonaro (no party).
The Budget proposal currently foresees R$ 34.7 billion for Auxílio Brasil (a substitute for Bolsa Família), with no expansion compared to 2021. The main priority of the economic team is to make more resources available for the program.
Pessôa also included in the list the amendments of the Budget rapporteur (the so-called RP 9), which are not currently provided for in the text and are used for the allied base to direct Union resources to destinations of interest to each congressman.
The researcher’s forecast is that deputies and senators will demand approximately R$ 20 billion for these instruments, contested by specialists for being lacking in transparency (having difficult execution monitoring) and for having questionable efficiency in evaluating the correct allocation of public resources.
Another demand remembered by Pessôa is the exemption from payroll for 17 sectors. Congressmen are pressing for the renewal of the benefit, which would end in 2021, for another five years. The cost is estimated at R$10 billion.
The list also includes the electoral fund, which had R$ 2 billion set aside in the budget and which is the target of negotiations to double the resources.
All the demands of the political class, however, compete with the advance of inflation — which corrects a series of mandatory expenses.
The 2022 Budget draft was sent with an estimate of 6.2% to the INPC (Broad National Consumer Price Index) in 2022, but prices continue to climb and the closing at the end of the year will determine the readjustment of mandatory expenses.
The economic team’s accounts predict that each percentage point above the projected increases spending in 2022 by approximately R$ 8 billion, and the government is already talking about an expense of R$ 16 billion to R$ 18 billion above the projected in the proposal for Budget.
For Pessoa, inflation will be even higher. He says that INPC will probably close at 9%, which in his accounts should add a little less than R$ 20 billion to public spending.
The researcher considers that there are several ways to find fiscal space, from removing court orders from the spending ceiling (which would generate a fiscal space of BRL 89.1 billion), to removing only the court orders referring to Fundef (former education fund) from the ceiling used for the Union to transfer funds, and because of which the federal government was ordered to pay R$ 16 billion to the states in 2022 after transfers below the amount due over the years).
The problem in the debate is to find a way out that, among other consequences, does not scare the market too much, which fears a derailment of fiscal policy and is already being affected by the discussion.
“There is enormous pressure to break the ceiling and increase spending,” says Pessôa in the article.
“The big problem is that breaking the ceiling completely discourages fiscal policy. Without it, we have no guarantee that the debt will be paid without the need for inflation tax revenue, that is, through inflation,” he writes.
To try to solve the problem, the Executive sent to Congress a PEC (proposed amendment to the Constitution) to parcel out the large court orders and save R$33.5 billion in 2022. But there are fears in the government that it may not win enough votes.
In the face of resistance, a new PEC was suggested by the vice president of the Chamber, Marcelo Ramos (PL-AM). The idea is to remove court orders from the spending ceiling, but the Ministry of Economy resists the solution.
In parallel, the government is still trying to negotiate an exit via the Judiciary, to create a limit on payments. But the solution, which was no longer a consensus in the Court, was further undermined by Bolsonaro’s threats to the Supreme Court on September 7 — although the government has not given up.
The theme continues to be followed by the market. “The difficulty is to find a way to establish an extra-text expenditure for 2022 without the perception of uncoupling the fiscal policy. In ‘farialimés’, the puzzle is to find a positive way to build the Budget”, says Pessôa in the article, in reference to the Faria Lima avenue in São Paulo (headquarters of different financial institutions).
“When there is distrust in relation to public solvency, the exchange rate depreciates, the interest curve inclines — because people charge a higher premium for raising the maturity of a public bond”, he says.
The text sent by the government can be changed by lawmakers and is usually voted on by Congress until the end of the year, although it is not uncommon for the year to start without the approval of the piece.
“What we know is that until the final text [do Orçamento] we will have rain and thunderstorms,” says Pessôa.