Put Christian Fernandes Rosa and Beatriz Wehby – 07/05/2020

The National Congress has completed the approval of the Proposed Constitutional Amendment (“PEC”) of the so-called War Budget, intended for actions to combat the pandemic resulting from COVID-19, such as permission to increase public spending.

According to article 1, which amends article 115 of the Transitional Constitutional Provisions, during the period of national public calamity resulting from a public health emergency at an international level, the Union will adopt an Extraordinary Regime fiscal, financial and contracting to meet the needs arising from the event.

In practice, the measure allows the Federal Government to expand its spending without violating the limits set forth in the budgetary rules for taking out loans, for example. The flexibility should be restricted to those situations in which, demonstrably, the urgency is incompatible with maintaining the regular regime applicable to the public budget.

The same article also establishes a Crisis Committee to monitor ongoing health measures. Still within the scope of health control measures, in its paragraph 3, it defined the exclusive jurisdiction of the Supreme Federal Court to judge conflicts between federative entities regarding the regulations of the Executive Branch that deal with the confrontation of the public calamity.

The Proposal also provides, in §4, that the Federal Executive Branch may adopt simplified processes for hiring personnel, on a temporary and emergency basis, and for works, services and purchases that ensure competition and equal conditions for all competitors, when possible.

This is because Article 169, §1º of the Constitution provides for these contracts and states that they may only be made if there is a prior budget allocation sufficient to meet the personnel expense projections and the resulting increases, as well as if there is specific authorization in the budget guidelines law. This rule was temporarily set aside by the constitutional amendment to the contracts dealt with in Article 37, item IX of the Constitution, which in turn provides for the possibility of hiring for a fixed period to meet a temporary need of exceptional public interest.

With regard to legislative proposals and Executive acts, when they are not permanent expenses and have the exclusive purpose of dealing with the calamity, the new §5 of Article 115 of the Constitution will provide that they are exempt from observing legal limitations regarding the creation, expansion or improvement of government action that entails an increase in expenses and the granting or extension of tax incentives or benefits that result in a waiver of revenue. This means greater freedom for the Executive Branch to establish tax benefits necessary to deal with the negative economic effects resulting from the epidemic. And, during the fiscal year in which the calamity is in effect, the carrying out of credit operations that exceed the amount of capital expenditures will be waived.

With regard to the financial system and capital markets, the Central Bank of Brazil, limited to dealing with the calamity, is authorized to buy and sell securities issued by the National Treasury, in the local and international secondary markets, as well as other assets such as private securities or credit rights. In this case, the amount of each transaction must be authorized by the Minister of Economy and reported to the National Congress.

The management acts of the Crisis Management Committee will be monitored by the National Congress, through the Federal Court of Auditors, which will assess the financial statements in a simplified manner.

The Public Law & Compliance team at Mazzucco & Mello Advogados will monitor the legislative and executive developments expected from the enactment of PEC 10/2020, and remains available for any clarifications.