New spending ceiling proposed by the Treasury is complex, but brings successes, say economists

The National Treasury’s proposal for a new spending cap is more complex than the current expenditure cap design, but it brings changes that go in the right direction by giving more flexibility to the fiscal rule, economists assess.

as anticipated the Sheet, the Ministry of Economy body is working on a reformulation of the spending ceiling that authorizes the real growth of expenses according to the level and trajectory of the public debt, at a rate to be defined every two years. The rule also grants a bonus to increase spending in the event of an improvement in the surplus in public accounts.

Today, the expenditure limit is only corrected for inflation, which makes it simpler to understand how it works, but, in the absence of reviewing other expenses, it ends up compressing the space for expenditures such as investments.

In recent years, the spending ceiling has been successively amended to accommodate extra spending on social benefits. The most recent initiative took place on the eve of the electoral campaign, to establish a “state of emergency” and pave the way for the boosted Auxílio Brasil of R$ 600 and benefits for truck drivers and taxi drivers, groups that make up the support base of President Jair Bolsonaro (PL ).

Without the same subterfuge, the 2023 Budget was sent to the National Congress without resources to ensure the continuity of the Auxílio Brasil of R$ 600 and with a wide cut in social areas. To avoid a blackout, economists who advise the main candidates for the Presidency of the Republic have advocated changes to the ceiling.

The Treasury proposal has been developed by technicians as a way of contributing to this discussion. Despite this, an official text should only be released in November. “Regardless of who is the winner of the election, we want to contribute to the debate. This is the role that the Treasury has”, said the secretary of the body, Paulo Valle, in a press conference this Thursday (29).

As the Treasury is a State body, there is care behind the scenes to prevent the proposal from being contaminated by electoral differences. The posture is one of collaboration in the face of any demonstration of interest by interlocutors of the president-elect.

By the preliminary design, the spending ceiling could have a real growth of 0% to 1%, if the indebtedness is increasing. But the gain could be greater, from 0.5% to 2%, if the debt trajectory is downward.

The exact percentage to be applied would depend on the level of indebtedness. In addition, the government could have a bonus of 0.5 percentage point if the primary result (difference between income and expenditure) is positive and also shows improvement over the years.

In the first year of application of the new rule (2024, according to the Treasury forecast), a single additional 2% would be included in the growth of the limit above inflation, to relieve expenses that are currently very compressed and also to increase the potential for political acceptance of the new rule. .

One of the formulators of the original spending ceiling, economist Marcos Mendes, a researcher at Insper and a columnist for Folha, believes that the new rule proposed by the Treasury is good. According to him, it brings elements that have been defended in current debates on tax rules, with adaptations to the Brazilian reality.

“The Treasury uses expenditure control with debt as a beacon. They solved the problem of the primary result, which in its current form generates a series of problems. punishment”, says Mendes.

Another positive point, according to him, is the choice of an indebtedness indicator that is less subject to manipulation in search of improvement through the Central Bank’s interest rate policy or the sale of international reserves (assets held by the BC that act as insurance against external).

The indicator chosen by the Treasury is the DLGG (net general government debt). It includes the federal government, states and municipalities – but, unlike other better-known indicators (such as gross debt or net public sector debt, the DLSP), it excludes state debt and government bonds used by the BC to make its interest rate policy. .

The economist warns, however, that the effective performance of the new rule in controlling indebtedness depends on the parameters adopted and the government’s level of commitment to its compliance.

“No fiscal rule, however nice it may be, survives an adverse political context. So, everything will depend on what the new government will negotiate in fiscal terms”, he says. “The rule only makes sense in the context of a political negotiation in which you effectively apply this rule and give guarantees that it will be feasible, it will be complied with. And for that, you need to carry out a series of reforms, review parliamentary amendments”, he adds. .

There is also concern about the ability of the parameters chosen by the National Treasury to ensure a healthy path for public debt in the future. This is a point of doubt for other economists heard privately by the Sheet. In addition, there is a risk that, in a possible negotiation with the National Congress, the bands of real growth in expenditure will be even more benevolent to deal with spending pressure.

The Treasury, in turn, is already working to expand its simulations of expenses and indebtedness in the future if the parameters are changed, to show their consequences – benign or otherwise. Technicians from the agency have presented the proposal to people outside the government precisely with the intention of collecting impressions and possible suggestions for improvement. Members of the Central Bank and the IMF (International Monetary Fund) have already had contact with the details.

Economist Leonardo Ribeiro, a Senate analyst and specialist in public accounts, has a more critical view of the proposal. For him, the model was confused by mixing a fiscal anchor (debt) with two types of operational rules (expenditure control and primary result). “It is an attempt to reduce the degree of freedom of fiscal management, but in the end it will compromise the coherence of the model”, he evaluates.

In addition, Ribeiro sees the proposal misaligned with the discussion of simplification of tax rules. “There are several types of combination, the operability is confusing”, he says.

In the analyst’s opinion, the Treasury is right when looking at the debt trajectory, but it should place it as an objective to be pursued and use only one operational rule to achieve it – in this case, the primary result, which relates expenses and revenues. , but without setting a spending limit.

“It is possible to define a super-rigid primary result target even with the collection rising”, argues Ribeiro, who also defends a model of periodic review of expenses.

Economist Vilma Pinto, director of the IFI (Independent Fiscal Institution) of the Senate, considers that the greater flexibility of the rule proposed by the Treasury is a positive point, since the rigidity of the current anchor was the root of most of the investments against the tax ceiling. spending.

The idea of ​​bringing a medium-term view, with a definition of expenditure growth for the following two years, was also well received by the economist, as was the use of the DLGG as a debt reference. However, it also expresses doubts about the sustainability of public debt.

“The rule itself does not address the merits of whether or not the debt is sustainable. It only defines fixed limits to define the percentage of growth in expenses”, says Pinto. She also cites the complexity of the Treasury-designed model as a downside to the current rule.