by Philippe Ambrosio Castro e Silva

It is well known that the legal system provides a distinct mechanism for the enforcement and payment of debts owed by the Public Treasury. This is the so-called precatório (court-ordered payment), which, in general terms, is nothing more than a payment order from the Judiciary to public bodies or entities, and which must comply with the principles of financial law, as well as impersonality and equal treatment of creditors.

The basic rules are set out in the Constitution and, over time, have been amended due to the Government’s inability to honor its obligations and debts. PEC 23/2021, also popularly known as the Precatórios PEC, adds to this scenario.

Its formulation has a clear political motivation, as it seeks both to give greater room in the public budget for new investments and for expanding social assistance payments, and to breach the “golden rule” of the so-called “spending cap”.

On 11/09/2021, the Chamber of Deputies approved the final text of the measure, which will now be examined by the Federal Senate.

The only “good” solution adopted by the Chamber in relation to the original bill sent by the Executive was the rejection of the rule providing for the unconstitutional, forced payment of precatórios in installments. In its place, however, an annual limit on the payment of precatórios was established by “damming up” the issuance of new precatórios. While the so-called “Spending Cap” (New Fiscal Regime) is in force, there will also be a cap on the payment of precatórios equivalent to the amount spent in 2016 by each debtor entity or body, adjusted by 7.2% between 2016 and 2017 and by the annual variation of the IPCA from 2017 onwards. Once the cap is reached, the remaining precatórios may only be issued in the following fiscal year.

This dynamic deals a fatal blow to the Constitution, as it subjects the Judiciary and final judgments to a kind of indefinite waiting list, constituting a flagrant disregard for the separation of the Powers of the Republic, res judicata and legal certainty.

Based on this intricate and still obscure mechanism, the bill creates the possibility of entering into settlements with a 40% discount for payment in a single installment by the end of the following fiscal year, which would apply to precatórios still pending issuance. This is yet another attempt to create difficulties for creditors in order to extract advantages, that is, the postponement of payment and the reduction of the Government’s court-ordered debts.

PEC 23/2021 also establishes an apparent automatic set-off against the tax debts of the precatório creditor, a mechanism that had been introduced before and was declared unconstitutional by the Federal Supreme Court in 2015.

This is a change that violates the principles of equality and least burdensome means in tax enforcement, as it allows the Public Treasury to stop using the enforcement means provided by law to satisfy its claims and instead use a compulsory route, clearly more burdensome for the private party, creating a huge imbalance of power.

Another important change is the provision allowing the creditor, “as established in the law of the debtor federative entity, self-executing for the Federal Government, to offer liquid and certain credits recognized by the federative entity or by a final judicial decision.”

PEC 23/2021 also changes the method for updating precatórios and all debts of the Public Treasury. Instead of using the IPCA-E as the monetary adjustment index plus default interest, only the accumulated variation of the so-called Selic rate will be applied.

However, it is well known that the Selic rate is not necessarily capable of reflecting the loss of capital value caused by inflation, much less of simultaneously offsetting the effects of default, as is the nature of interest.

So much so that the STF has already declared unconstitutional a legally similar rule, which established the Reference Rate (TR) as the monetary adjustment index.

It should be noted that this harmful circumstance would apply to any and all debts under discussion against the Public Treasury; that is, even long before the precatório is issued, the debt would be “adjusted” by the variation of the Selic rate.

In short, although it is riddled with unconstitutionalities — some of which have already been recognized by the STF when examining other amendments on precatórios — the chances of its approval by the Senate are high, which will result in yet another enormous number of challenges in the Judiciary, with the potential to politicize judicial rulings and further undermine the already weakened and almost non-existent legal certainty that should be observed, above all, in dealings with the Public Administration.

Article originally published in Estadão (in Portuguese), on 11.12.2021.