The forecast in the design of the new fiscal framework of a mechanism to reduce the growth of expenditures in the year following the non-compliance with fiscal targets is considered by the economic area of the government a more efficient alternative to the current contingency of Budget expenditures.
The repeated contingencies (blocking of resources) to comply with the current spending ceiling have generated major distortions and led to poor management of public policies, in the assessment of formulators of the fiscal framework project.
Members of the economic area heard by the report point out that the new model does not prohibit blocking spending, but allows for more efficient budget management by the ministries. It avoids, for example, that in the first bimonthly revenue and expenditure assessment report, the government has to make provisions for the Budget.
According to the rule presented by the Minister of Finance, Fernando Haddad, the annual growth in expenses will be limited to 70% of the variation in net revenue in the last 12 months. The cut-off date is July of the previous year. Expenses may grow above inflation from 0.6% (floor) to 2.5% (ceiling) per year.
If the primary result of the government’s accounts (revenue minus expenditure, except expenditures on debt interest) remains outside the fluctuation band of fiscal targets, expenditure will have to grow less in the following year.
Instead of the limit of 70% of income, expenses will have to grow by 50%. This will require budget cuts in the following year if the fiscal target is not met. The assessment is that the penalty will end up being the inducing factor for good management of the Budget rule.
This is one of the most important points of the rules in the view of its formulators, who see in this measure a more refined articulation between the new spending control rule and the fiscal targets. The idea is to minimize the overlap that exists today between the spending ceiling (a rule that limits expenditure growth to inflation variation) and the Fiscal Responsibility Law (LRF), which requires compliance with annual targets.
The cut-off date for the accumulated 12 months through July for setting the amount of revenue that will be considered to calculate the growth in expenses in the Budget for the following year was also defined to avoid trying to inflate the collection to make room for increased spending in the Budget.
The information is from the newspaper The State of S. Paulo.
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