Opinion – Solange Srour: Candidates leading polls want license to spend

With less than two months to go before the presidential election, the top-placed candidates in the polls will not present economic proposals that restore confidence in fiscal sustainability before the election ends.

What we see are promises of increased spending and the call for “inevitable fiscal easing for 2023”.

The situation is natural for campaigns, but it goes against the urgency of the necessary adjustment. We will close this year with high public debt, with a short maturity and very sensitive to short-term interest rates.

The fiscal rule is weakened and collection tends to fall with the prospect of controlling inflation, falling commodities and slowing the economy. It is not difficult to imagine that, in a possible environment of greater aversion to global risk, Brazil will find it difficult to finance itself.

Across both political spectrums, the narrative for 2023 is the same. On the one hand, Auxílio Brasil cannot be less than R$ 600 (with a total cost more than four times that of the former Bolsa Família) given the increase in poverty.

On the other hand, personnel expenditures and public investment are held back and need to rise. The result of a fierce campaign is the creation of a consensus in society that it is really necessary to spend more, and for that there is only the flexibilization or extinction of the ceiling rule.

While polarization results in the desire to increase the role of the State, the real dysfunctionality of the State remains outside the radar and the political debate: we spend a lot on public policies, but we do not generate social inclusion or increase in productivity.

Let’s look at one of our biggest expenditures: public education. According to 2018 World Bank data, our expenditure is equivalent to 6.1% of GDP, well above the world averages (4.9%), Latin America (5.3%) and the OECD (5.2%). Despite the increase in educational attainment in recent years, the OECD’s learning and labor productivity indicators put us in a much worse position than countries with similar expenditure per student.

When it comes to spending on social protection (the topic of the moment around the world after the pandemic), Brazil has always been out of tune. National Treasury data, organized according to the OECD methodology, show that in 2018 the Federal Government spent 12.8% of GDP on social protection, while advanced economies spent 7.1%; and emerging markets, 4.3%.

We made progress with the Social Security reform, but we maintained a series of overlapping and poorly articulated programs. The extinction of the salary allowance and family allowance and the change in the rules for access to the BPC (disability pension) face enormous resistance, while we make it acceptable to continue a benefit that had to be granted hastily, in an emergency situation, and no funding source. Both a good public policy design and an evaluation of results are lacking.

It is not by chance that, despite the fact that we tax a lot, given our level of development, tax reform enters the candidates’ agenda as a way of increasing revenue. Today, the tax burden is around 34% of GDP, while the average for emerging countries is 27%.

The license to continue with the new Auxílio Brasil is a reflection of the old narrative that we need “more State”, which makes room for other licenses: lower taxation on fuels, more subsidies for public credit, incentives for the reindustrialization of the country, resumption of of public investments in housing, among others. The argument is known and failed – only with the resumption of growth is it possible to rebalance the public budget.

Expenditures that need to increase but have no impact on short-term GDP are set aside. In the area of ​​health, for example, although Brazil spends a lot (9.6% of GDP in 2019 – more than the OECD average of 8.8%), 60% of this spending is private, leaving the Unified Health System underfunded. We spent a smaller share of the public budget on health (10.5%) than most OECD countries in 2019, which averaged 15.3%. There is no lack of good proposals to improve and strengthen public health in Brazil – the More SUS Agenda of the IEPS (Instituto de Estudos para Políticas de Saúde) is one of the examples.

The challenge of putting fiscal accounts back on a sustainable path while protecting the poorest is not small. We have to re-establish a credible fiscal rule and a set of measures that will allow primary surpluses for a long time, bringing not only the stabilization of indebtedness, but also the prospect of a downward trajectory.

Reforming the role of the State is an inexorable part of this process. If the markets are complacent, it’s easier to ask for a license to spend and push the hard part forward.