The LDO speaker is helping the government “quietly” and deliver spending cuts in 2024

BRASÍLIA – Without fanfare, speaker Budget Guidance Act (LDO) 2024, deputy Danilo Forte (União-CE), satisfied the requirements of the government and Art Congress and paved the way for less contingency (preemptive blocking) spending next year when municipal elections are held.

LDO rapporteur, Deputy Danilo Forte (União-CE)

LDO rapporteur, Deputy Danilo Forte (União-CE)

Photo: Pablo Valadares / Agência Câmara / Estadão

On Thursday, the 7th, the deputy said that he would not accept the amendment proposed by the leader of the government in Congress, Sen. Randolph Rodriguez (No party-AP), which created a lower ceiling for lockouts that would help retain investment, especially from PACs. Forte even said that there was an offer “legal deficiencies”highlighted by Art Federal Accounting Court (TCU) and to consult the House on the budget.

In practice, however, the new revision of the LDO signed by Forte has the same effect as the rejected amendment intended. This is what the chief economist of Warren Investimentos and former finance minister of the state of São Paulo, Felipe Salta, points out.

“The speaker has much more clearly stated the goal of this government. He simply wrote that the costs incurred will be taxed at a minimum of 0.6% (real spending growth)“, – says Salta.

That minimum applies to a range of variations in federal payments, which, under the new fiscal framework, should rise between 0.6% and 2.5% above inflation from one year to the next. The “Randolph Amendment,” as it came to be known, linked the contingency limit to this very same rule, but was worded differently.

Ryo Asset Chief Economist and former Director of the Independent Financial Institute (IFI) Gabriel Barros shares the same understanding. “The speaker mentioned the FRF (Act on Tax Liability) to limit contingency spending as required by Randolph,” he states.

A difference of R$ 30 billion

Salto calculates that with this new LDO formulation, the maximum contingency will increase from R$52.7 billion to R$22.3 billion in 2024—a difference of about R$30 billion. For an economist, the system worsens the framework and creates a dangerous precedent.

“First, there is the legal question of whether the LDO (which is common law) to advance in relation to the Supplementary Act 200 (from taxation)which is higher than the LDO,” says the economist. The framework envisages that the government will be able to cover up to 25% of discretionary spending (non-compulsory, such as financing and investment) – which represents a figure of R$52.7 billion in 2024.

“The framework limited spending at the budget stage, not payment, those are two different things. If the government or Congress wants to change that, which would be very negative for an already fragile financial system, the right tool to do that would be through additional legislation,” Ryo Asset’s Barros reinforces.

In addition, Salta points out, this smaller blockade will leave the government even further away from next year’s zero-deficit target. “The deficit expected for 2024 is automatically worsened by 0.2% of GDP. That in itself is bad,” he says. He also warns about the future: “The government, when it comes in March or even before, will be under pressure to change the target. And that’s in a scenario where his hands will be even more tied because he’ll be able to make less budget cuts.”

For Salto, this would be the worst possible scenario: the government cuts less spending based on this new LDO rule and then changes the fiscal target to a softer one. “Changing the target would undermine the logic of the triggers (limit on new costs). The framework is entrenched against the LRF, allowing the target to be hacked, but only if it activates the triggers,” he muses.

Economist Warren Investimentos is also concerned about the creation of additional protection for the commission’s amendments, which are not binding, that is, they are not binding. The new version of the LDO extends the protection of these costs, which previously only applied to mandatory amendments, which are individual and supervisory amendments.

“Today, it is only possible to reduce mandatory amendments in the same proportion as the expenses of the executive branch. The speaker suggested the same for committee amendments and even created a calendar (pay these expenses)According to the 2024 LDO, mandatory amendments must be made in the first half of the year, amounting to 37.5 billion reais.

For Forte, the calendar will help to curb “political physiologism”, since the release of resources will no longer be subordinated to the political interests of the authorities. The executive’s argument, however, is that, in addition to hindering budget management, the device creates interference with government duties.

In addition to these provisions, the government will have to comply with a list of non-contingent expenditures, including agribusiness and science and technology expenditures. A total of 12 territories will be fenced off. They are:

  • Research, development and technology transfer for agriculture under the responsibility of the Brazilian Agricultural Research Corporation (Embrapa);
  • Expenditures for the protection of agriculture;
  • Technical assistance and rural assistance;
  • Economic subsidies in federal government procurement and in the formation of regulatory and strategic reserves;
  • Economic subsidies to guarantee and support prices for the sale of agricultural products;
  • Costs related to the function of science, technology and innovation;
  • Costs related to maritime professional education (EPM) designed to qualify and train port and water workers to assist in the support duties of the Brazilian Navy;
  • Costs to support the education of highly qualified people;
  • Costs related to the development and structuring of policies for the reception of women who have become victims of violence;
  • Promoting the prevention of violence against children and adolescents;
  • Expenses for carrying out activities on labor inspection, combating slave and child labor and prevention of occupational safety and health;
  • Expenditures aimed at promoting women’s employment, entrepreneurship and income.

LDO speaker defends calendar for amendments and says innovation will help curb

LDO speaker defends calendar for amendments and says innovation will help curb “political physiologism”.

Photo: Pablo Valadares / Agência Câmara / Estadão

For Gabriel Barros, the planned changes will be very negative for the

For Gabriel Barros, the planned changes will be very negative for the “already fragile financial system”.

Photo: Disclosure/Leo Pinheiro / Estadão

For Salto, the system worsens the framework and sets a dangerous precedent.

For Salto, the system worsens the framework and sets a dangerous precedent.

Photo: Dida Sampaio/Estadão / Estadão

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