Spending ceiling and pension reform improved public accounts, says Economy

At a time when candidates for the Planalto Palace criticize the spending ceiling, the Ministry of Economy released a study this Wednesday (25th) that points to the fiscal rule as one of the main factors of structural improvement in the country’s accounts.

The so-called structural fiscal result, which estimates the situation of the finances of the Union, states and municipalities without considering merely transitory effects —such as one-off increases in revenue or expenses—, was positive at 2.37% of GDP (Gross Domestic Product) in 2021.

It is the first time that this result has been in the blue since 2013. The value is also the highest since 2008 (when it stood at 3.23% of GDP).

The official performance of public sector accounts is released by the Central Bank in January of each year. The 2021 result, according to the BC, was positive by R$ 64.7 billion, equivalent to 0.75% of GDP.

However, this statistic includes structural and transitory factors without distinction. An atypical and punctual inflow of revenue is accounted for in the same way as an increase in revenue considered to be structural—derived from economic growth, for example.

Likewise, the so-called conventional result, informed by the BC, includes transitory expenses, such as government spending to combat the economic, health and social effects of Covid-19. Last year, R$ 120.8 billion were spent on this front.

The calculation of the structural result is done annually by the Ministry of Economy in an attempt to separate what is a circumstantial improvement or worsening of public accounts from what can be considered permanent gain or loss.

In 2020, at the height of the effects of Covid-19, when the government had to open its coffers and spend almost BRL 600 billion to fight the pandemic, Brazil recorded the worst hole in its history: a deficit of BRL 703 billion, equivalent to to 9.41% of GDP. But the structural deficit was much smaller, at 0.49%.

For technicians, the improvement observed last year stems from the reforms carried out to contain expenditures. They cite the creation of the spending ceiling, a rule proposed in the Michel Temer government (MDB) that limited the advance of expenses to the variation of inflation, and the pension reform, approved already in the government of President Jair Bolsonaro (PL).

The lock for granting readjustments to public servants in 2020 and 2021, approved by Congress linked to a financial aid to states and municipalities during the pandemic, also contributed to a permanent gain on the expense side.

“The improvement in the structural result compared to 2020 occurred at all levels of government and demonstrates the results of economic policy,” said the Secretary of Economic Policy at the Ministry of Economy, Pedro Calhman. For him, the result is evidence of a “consistent progress in fiscal adjustment”.

“The improvement in the trajectory of the structural fiscal result as of 2017 is due to the amendment to the spending ceiling and the pension reform, which have contributed not only to the ongoing fiscal consolidation process but also to improving the solvency conditions of the public sector consolidated”, said the general coordinator of Economic-Fiscal Models and Projections, Sérgio Gadelha.

The defense of the spending cap results comes at a time when the rule is under fire in the electoral debate.

Leader in polls of voting intentions, former president Luiz Inácio Lula da Silva (PT) has already publicly defended the end of the spending cap. Although he did not appoint a spokesperson to centralize the economic issues, the PT has experts around him who defend changes in the rule.

President Jair Bolsonaro himself has already signaled that he intends to make changes to the rule to be able to expand investments, which are quite compressed in the face of the growth of mandatory expenses without the government being able to advance in the revision of these expenses beyond the pension reform.

“Last year, we had an excess of revenue, more revenue, in the region of R$ 300 billion. You cannot use a penny of that in the infrastructure given the constitutional amendment of the ceiling back there. something is changed, we will leave it for the future, after the elections, to discuss this issue,” Bolsonaro told a radio station in Cuiabá (MT) at the end of April.

In addition to giving public evidence that the appetite for increased expenses has not yet been exhausted, the president has already accumulated a series of dribbles to the ceiling, as shown by the Sheet.