The first guidelines of the Lula-Alckmin slate’s government plan foresee the end of the spending cap and the repeal of the labor reform, constitutional changes approved in the Temer government (2016-1018).
According to Unicamp professor Guilherme Mello, 39, coordinator of the PT’s Public Policy Monitoring Center – Economy (which shares the role with Aloizio Mercadante), a possible Lula government will seek a new fiscal regime, based on international experiences, that prioritizes the social spending, boost the economy and reduce the debt/GDP ratio — the main indicator of the country’s solvency.
“We have 33 million people going hungry. The priority is to serve these people with public policies” says Mello. “From the economist’s point of view, this is an expense. But there is the multiplier impact of this expense.”
Mello argues that the PT was and will be fiscally responsible again. “If there’s anyone who can talk about fiscal responsibility, it’s Lula.”
Regarding the labor reform, he states that it is not a question of “going back to the old CLT (Consolidation of Labor Laws)” and that not everything in the area that was approved in the Temer government “is no good”.
In its program of guidelines, the PT says it wants to “replace the poor and workers in the Budget”. But he says that “it is necessary to revoke the spending ceiling and review the current Brazilian tax regime”. How to do it keeping the public accounts in order? We have to be clear that without growth, it is very difficult to achieve some kind of positive fiscal trajectory. The growth dynamizes the market, generates revenue, formalizes a part of the workers. All of this has a relevant fiscal impact. In addition to increasing GDP, which is the denominator. and the main [no controle fiscal] is the relationship between [o tamanho da] debt [pública] and the GDP.
Distributive policies play a role in resuming growth. One thing feeds the other. Well-designed policies that increase income and employment will have an impact on growth, which will help, in the medium and long term, to achieve sustainability.
During the Lula administrations, we had an increase in public investment, both in social and in infrastructure, and a decrease in the debt/GDP ratio. Growth is a theme, but not the only one.
The current framework has lost credibility. Bolsonaro has already pierced the ceiling in his government and has yet another absurd attempt to change the ICMS [para baratear combustÃveis], which will be very expensive and will have little effect on prices. In addition to taking funding from health and education. A terror.
The rule [do teto] had design problems and has been systematically disrespected. The ceiling did not deliver what it promised, not only in terms of growth and increased investment.
He worsened the quality and transparency of public spending, with amendments by the rapporteur and secret budget, putting investments at a historic low.
What to put in place of the ceiling? What is the proposal? We are looking at the principles of fiscal frameworks that are enshrined in international literature and experience. If it is flexible, countercyclical, distributive expenditures with a high multiplier are prioritized, with dimensions to monitor expenditures.
There are several possible formats. There are countries with spending rules. Others, with primary or nominal results. Or with rule for the result adjusted by the cycle [econômico], or throughout the cycle. There are countries with debt rules [relação dÃvida/PIB] defined.
The best will be the one that builds a consensus about the rule. What matters is that, regardless of the format, it respects the principles.
Today we have three rules: the golden [que proÃbe o governo de fazer dÃvidas para pagar despesas correntes, como salários e custeio]the roof [que limita o aumento da despesa à inflação do ano anterior] and the Fiscal Responsibility Law [que fixa limites para as despesas com pessoal, entre outros].
The three do not talk to each other, they are from different generations and no longer respect what is established as a good tax rule in the international literature.
Who will define the new rule will be the new government and the new Congress. They are not elected yet. Everything can be negotiated. What is not recommended is to try to make a rule that deviates from the principles established in the international literature and experience as appropriate.
Is the generation of primary surpluses to control public debt part of the guideline? Obviously, the main objective will be to stabilize or reduce the debt/GDP ratio. When talking about sustainability, the main indicator is the net debt/GDP ratio. The primary surplus is a component of this equation. There are others, such as reducing inflation and interest rates. We have to build a trajectory in that direction.
The design will depend. When we talk about spending rule, the control is by spending, which is the ceiling. In this case, the primary outcome may vary. Because, in some years, the collection may come better than in others. I can also have a result rule, which can be adjusted both on the expense and revenue side. Other countries have a debt limit rule, which I think is a little more complicated.
Regardless of the design of the new framework, what matters is that it has an objective: to reconcile the possibility of reactivating investments and growth by projecting a fiscal trajectory of stabilization and debt reduction in the medium and long term.
The main justification for adopting the ceiling was that public spending grew 6% a year, above inflation, between 1997 and 2016. This was paid for with an increase in the tax burden and public debt. Negotiations will be with Congress, which is good at creating expenses, but not so discerning about sources of revenue. Isn’t a spending rule safer? We can create a spending rule that is more in line with international experiences. Ours is very bad and it has promoted the deterioration of the quality of spending, the deterioration of public services and it is no longer sustainable or credible. It is so bad that whoever defends it, pierces it.
One of the very clear things in the international literature is to prioritize social and infrastructure investments, with a greater multiplier effect to distribute income and increase productivity.
When Lula took office in 2003, Brazil had been running surpluses to control the debt since 1999. In the 2004/2005 biennium, they reached 3.7% of GDP; and the economy took off. There seems to be an understanding that this was important. But only in 2021 will we have a surplus again [0,75% do PIB], after seven years of deficit, which began in 2014, under Dilma’s government. What would be more prudent: persevere a little on the current path or spend more on the way out? There is a challenge ahead. We have 33 million people starving, with misery taking over the country. This is unacceptable and, above all, the priority is to serve these people with public policies.
From the economist’s point of view, this is spent. But there is the multiplier impact of this expenditure, which is clearly stimulating, as it was during the Lula administrations.
Yes, there is a discussion about the fiscal framework and how it will be reformed. What Lula represented in his administrations is that there will be heavy investment in social matters. And we also need to think about the revenue side, with a more efficient tax structure.
Once the election is won, Lula will be legitimized at the polls, with a reinforced parliamentary base, I hope. He will be able to open the dialogue to find the solution for these investments.
There are many people who maintain the narrative that the PT governments spent too much and broke Brazil. This is not true.
Net debt was 60% of GDP in 2002, before Lula took over. It fell by half in the Dilma government [para 30,6% do PIB em 2013].
But that changed under Dilma’s government. It is true that the flow of revenue decreased soon after and that of expenditure grew, although less than before, and that this was taking away fiscal space from the government. [a partir de 2014, quando as contas públicas se tornaram deficitárias e assim ficariam por sete anos, até 2021]. But to say that there was spending and that the PT broke the country is not supported by the data.
Under the PT governments, Brazil not only halved its net debt, but did so by paying all its external debt. [em 2005, quando saldou antecipadamente US$ 15,5 bilhões que devia ao FMI] and accumulating US$ 370 billion in international reserves.
It is true that we had a deficit in 2014 [0,6% do PIB] and I am not denying that there has been a deterioration. But the narrative that the crisis occurs because of spending and irresponsibility is not true.
If there’s anyone who can talk about fiscal responsibility, it’s Lula. Now, we need a new fiscal framework, but it needs to dialogue with the national and international reality. Our current one does not dialogue with anything, so much so that it is changed by those who defend it.
The PT’s draft program defends “the repeal of the labor reform carried out in the Temer government and the construction of new labor legislation”. What do you want to put in place? The challenge is how to regulate working relationships in a world that is constantly changing, with new categories. I don’t remember ordering food through an app for five years.
But wasn’t the flexibility in reform in the sense of a world that has changed? I’m not saying that nothing there is any good. But it was a reform inspired by the one Spain did in 2012, which has now been revised. For the problems that arose there are also arising here.
Deep down, it greatly weakened collective bargaining, unions and the Labor Court. And it gives a lot of strength to individual negotiation. In a scenario of recession and high unemployment, as we are seeing now, the result is a drop in worker income.
What we need is a negotiated framework, at a negotiating table with entrepreneurs, workers and the public sector.
I’m not saying it’s going back to the old CLT. Nobody is saying that. But a new framework that takes into account this world of work that is changing, with people who were left out of this legislation and absolutely deprived of rights.
And, at the same time, to strengthen collective bargaining and the organization of workers.
X-ray – Guilherme Mello, 39
He is a professor at the Institute of Economics and coordinator of the graduate program in Economic Development at Unicamp. Graduated in Economic Sciences from PUC-SP, with a master’s degree in Political Economy and a PhD in Economic Science from Unicamp. He coordinates the PT’s Public Policy-Economy Monitoring Center
I have over 8 years of experience in the news industry. I have worked for various news websites and have also written for a few news agencies. I mostly cover healthcare news, but I am also interested in other topics such as politics, business, and entertainment. In my free time, I enjoy writing fiction and spending time with my family and friends.
