Under discussion in the Chamber of Deputies, the Proposal for a Constitutional Amendment (PEC) of the Precatório is seen by the market as a default legalized by the government to circumvent judicial commitments and manage to boost proposals aimed at next year’s elections, such as the Auxílio Brasil.
The court orders were nicknamed “meteor” by the Minister of Economy, Paulo Guedes, and the PEC proposes the installment of judicial debts of the Union with individuals and legal entities, which should be paid next year. The total value of the processes for 2022 is almost R$90 billion, and for 2021 alone, the Union Budget foresees to spend R$54.75 billion on the segment (see chart below).
+ PEC dos Precatório needs to be approved by the 2nd week of November, says Roma
With the idea of paying small court orders and leaving the high value for another period, the government arranges space in the Budget to allocate resources to Auxílio Brasil, the new name of Bolsa Família that will transfer installments of R$ 400 to families in extreme poverty until the end next year.
Submitted in August, the PEC was unable to advance in the Chamber. There was the possibility of debating the topic this week, but the government was unable to form a majority to vote on the text, which requires a qualified choir (minimum of 308 deputies) to be approved and the proposal should return to the agenda next week.
Deputies such as the vice president of the Chamber, Marcelo Ramos (PL-AM), call the PEC a “bombing combination of ‘hole ceiling’, fiscal pedaling and default”.
Why is PEC bad for the Brazilian economy?
The tax lawyer at Marcelo Tostes Advogados, João Paulo Linhares Rocha, ponders that by adopting such a measure, the government hurts its fiscal credibility with investors.
“The court orders are mandatory debts and, therefore, their payment in installments only extends the credit that is owed to the creditor. By sending the message that it cannot afford its debts, the country is putting its fiscal credibility abroad, investor confidence and its own financial sustainability at risk,” Rocha said in a statement.
For the tax authorities, an alternative to the impasse in the text would be the payment of court orders in cash, but with a discount, an item present in the Constitution of court orders above certain amounts – precisely what the government wants to extend.
“We must bear in mind that court orders are debts owed by people or companies who are waiting to receive their right, and a proposal for an installment plan that pushes them further puts the country’s financial health at risk,” added João Paulo Linhares Rocha.
Snowball in Public Debt
A projection made by the Precatory Commission of the Brazilian Bar Association (OAB), indicates that the public debt could reach R$ 1.5 trillion by 2036 if the government continues to pay forward.
President of the commission, Eduardo Gouvêa says that, in addition to being unconstitutional, the text breaks the spending ceiling and sends a diffuse message to the market at a crucial moment for the resumption of growth.
“Installation of court orders, which are a net right and mandatory expenditure of the government, has already been ruled unconstitutional by the Federal Supreme Court (STF) on three occasions. I don’t see why it’s different now,” he said in a statement.
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