“PEC Emergencial does not bring fiscal compensation in the short term”, says Salto

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Contrary to what the Ministry of Economy says, the amendment to the Constitution resulting from the Emergency PEC, which opened space for new emergency aid, is far from being a “tax reform”, in the evaluation of the executive director of the Independent Tax Institution (IFI), Felipe Salto.

In an interview with EXAME, the economist warns that the benefit to the most vulnerable will come by Provisional Measure, but the adjustments in the public accounts that would compensate for the expenditure have no date to arrive. “The PEC was proposed as a kind of bargain from the Ministry of Economy to exchange a possible fiscal adjustment for aid, but the rules will not generate fiscal adjustment in 2022, in 2023 and, probably, not even in 2024”, points out Salto.

The triggers so defended by the government’s economic team, such as the freezing of public servants’ salaries, will not take effect until 2025, according to the IFI’s calculations. In addition, states and municipalities will not be obliged to adopt cost containment measures, even in times of fiscal urgency, and the provision that provides for a reduction in tax incentives risks not having any effect.

See the main excerpts from the interview:

The government is expected to send the provisional emergency aid measure in the coming days. The PEC approved by Congress, now amended, establishes a limit of 44 billion reais for spending on the benefit outside the ceiling. Was this limit necessary?

The solution found, which was to fix the amount in the Constitution, gives more security to the government, because there were uncertainties about the conditions of unpredictability and urgency required to make the credit. On the other hand, it ties the possibilities a lot, because the value was fixed at 44 billion reais. It is quite unusual to place a nominal number in the Constitution.