Congress approves Budget Guidelines Law (“LDO”)

A Budget Guidelines Law for 2012 was approved in Congress yesterday. It sets the minimum wage for next year at R$616.34 and orders a real adjustment (above inflation) in payment benefits for Social Security (“INSS”) pensioners and retirees.

According to the president of the Senate, and former president, Jose Sarney (PMDB-AP), “While in Europe they are cutting back on entitlements (“Estado Social de Direito”), here in Brazil and other developing countries, we are going in the opposite direction as we guarantee more social rights.”

The LDO bill approved preserved the administration’s macroeconomic parameters: GDP growth this year will be 4.5% and 5% in 2012. The inflation target, as measured by the Broad Consumer Price Index (“IPCA”), is 5% this year, and 4.5% in 2012.

The bill also allocates money for congressional earmarks (“emendas individuais de deputados e senadores”), along with what the executive branch requested for its Accelerated Growth Program (“PAC”) and social assistance projects (reduction of extreme misery – “Brasil Sem Miseria”).

With regard to the primary surplus target, the LDO sets it at R$139.822 billion for the Union, states and municipalities, of which R$96.973 is to come from the federal government. However, Congress restricted the amount that can be used in the PAC to R$40.6 billion.

The approved LDO limits the nominal deficit to 0.87% of GDP and calls for current expenditures – payroll outlays, for example – to be less than any increase in government spending (“investimentos”).

In the case of public works halted due to watchdog investigations (“Tribunal de Contas da União – TCU”), the LDO requires examination of the situation by the Congressional Joint Budget Commission within 40 days of the conclusion of auditing. Furthermore, any such suspensions can only be cancelled by the commission.

Finally, the LDO approved by the Congress also prohibits the executive branch from executing spending projects before they are approved in the General Budget (“Orçamento Geral da União”) [note: the LDO sets guidelines, and as such is a sort of preliminary look at what the final budget will look like; the General Budget is the real budget and is what really counts. It will go to Congress for approval later in the year]. The LDO bill the executive branch sent Congress permitted spending on PAC projects and allowed allocations to state-run enterprises until December 31 without budgetary approval. [this conflict between the executive branch and the legislature will have to be ironed out in the General Budget]