Opinion – Samuel Pessôa: The left and the spending ceiling

Last week, André Singer and Fernando Rugistsky argued in this Sheet that ending the spending ceiling is essential for democracy.

The argument is that if there is a restriction on spending at the beginning of the Lula government, society will be frustrated and will be able to support the return of the authoritarian right in 2026.

The idea is that the good moment we are experiencing under Lula’s government resulted from the growth in public spending and its positive impacts on the growth of the economy.

Finally, they suggest that in the US the strength of Trumpism has been maintained because Congress has not supported a new round of expansion in public spending. According to Singer and Rugistsky, “the blockade of the so-called ‘American Families Plan’, which would potentially have more structural and lasting effects, has contributed to the survival of Trumpism, which may even prevail in the elections next November.”

The US labor market figures do not support this reading. The generation of jobs has been going very well and income is starting to recover. The recent sharp drop in consumer confidence, as measured by the monthly survey conducted by the University of Michigan, suggests that inflation has hurt President Biden’s popularity, and could jeopardize the tenuous Democratic majority in this year’s midterm elections. in the Senate.

With regard to Brazil, it is not true, as the authors point out, that there is a study by the Independent Fiscal Institution (IFI) that shows that public spending would have stimulated growth between 2006 and 2014.

The IFI study documents that the fiscal momentum was positive in this period. However, the same work also shows that in this period the economy was operating at full employment. A positive fiscal impulse in a full-employment economy produces permanent inflationary pressure, high real interest rates, a tendency to appreciate the exchange rate (if the country risk is falling) and a decline in net exports.

In fact, between 2006 and 2014 the IPCA rose from 3.1% to 6.4%, despite all the repressed inflation, while net exports went from a surplus of 4.3% of GDP in 2005 to a deficit of 3 .7% of GDP in 2014, a turnaround of 8 percentage points of GDP.

As in the American case, our biggest economic problem today (and one of the biggest social problems) is inflation. In May, the IPCA closed at 11.7% per year and services, excluding the very volatile item of airline tickets, runs at 7.3% per year.

As everyone knows, what has hampered Bolsonaro’s re-election path is inflation. If the next government is not quick to solve this problem, then Bolsonaro can come back.

Does this all mean that there is no way to the left? That she has to accept the spending cap?

Of course. It only indicates that the easing of the spending ceiling needs to be preceded by the construction of a structurally solvent fiscal situation, that is, we must have a structural primary surplus sufficient to reduce public debt.

It is natural for the left to want to increase public spending. The way is for the left to convince society to hand over more taxes to the state. And to do so prioritizing the raising of income taxes on the upper classes.

For those interested, my colleague from FGV Ibre Manoel Pires has just released the book “Tax Progressivity and Economic Growth” with the rocky path to increase the tax burden on the richest. The book can be downloaded free of charge from the FGV Ibre website.

Then, yes, we can make the spending ceiling more flexible.