Opinion – Marcos Mendes: What to expect from Lula and Bolsonaro’s fiscal policy

Spending increases already approved by Congress and those promised during the election campaign do not fit into the spending ceiling. The 2023 budget will need to be redone by Congress, and a PEC must be passed expanding the ceiling. This will take place after the elections, before the inauguration of the new president.

If Lula is elected, we will have a Congress deciding the budget and the new ceiling with a Bolsonaro still occupying the presidential chair, but without power. There is a risk that Congress will take the opportunity to significantly increase spending.

Furthermore, 85% of parliamentarians who appeared in the press as beneficiaries of more than R$ 20 million per year in rapporteur amendments will remain in Congress. They must take advantage of the same PEC to constitutionalize the secret budget, anticipating a declaration of unconstitutionality, currently being developed in the STF.

If that happens, there will be little room for Lula to regain control over the budget. If Bolsonaro is elected, he can use the increase in his post-election political muscle to avoid excessive expansion of the ceiling and dismantle the rapporteur’s amendments, created at a time of political fragility. It remains to be seen whether he will be willing to do so. The spending increases he is promising during the campaign do not bode well.

A version gained strength among analysts that the composition of the elected Congress is more conservative and, therefore, in a Lula government, it would prevent a sharp fiscal expansion. This thesis is not supported by the numbers.

Together with Marcos Lisboa, I examined the voting pattern of parliamentarians who were re-elected to the Chamber. In projects that involve low fiscal responsibility, deputies elected by the PP, Republicans and PL have a percentage of favorable votes equal to or greater than those of the left-wing benches.

You can’t count on parliament as a barrier to fiscal nonsense. It will continue to be the scene of pressure from sectoral lobbies and party-political gluttony.

The fiscal consolidation initiative will have to come from the Executive. And it will not be simple, as the debt is high and will grow again next year. There is already a contracted primary deficit of around 1.3% of GDP and the situation of the international economy projects heavy clouds, which will bring down our revenue.

Lula signals “end with the spending ceiling”. If he doesn’t put anything credible in place, his government will quickly be derailed. Society will not fall back into the trick of having loose fiscal rules or “for the market to see”, as happened in previous PT governments, with the adoption of exceptions in the calculation of the primary result and creative accounting on debt.

Similarly, Bolsonaro will not be able to spend another four years stretching the ceiling with accounting changes and delays in paying precatories. He will have to propose consistent and perennial rule.

Looking at what each candidate can bring positive, we have Lula with a greater chance of approving the reform on consumption taxation. It is an agenda that does not conflict with the demands of its support base and has less and less resistance in the sectors that feel harmed. Economists close to the PT have been working on the projects, which are technically mature. Bolsonaro had the chance to make this agenda move, but he left it aside.

Lula could also improve the quality of social policy. Although Bolsonaro has raised spending in the sector to more than R$300 billion a year, there has been a loss of quality in the design of Auxílio Brasil. There will probably not be the necessary consolidation and general reform of the programs, but quality improvements in cash transfers would already be positive.

Bolsonaro, in turn, may try to return to the important agenda of privatizations, untying and exoneration of expenses, which are prohibited in Lula’s political field.

Both signal an administrative reform in the public sector. Lula will have more difficulty in tackling the issue, given the PT’s link with the civil servants’ unions.

The federative conflict with the states could be lessened by the two candidates. Bolsonaro because allies were elected in important states, and Lula because he has more leeway to deal with a problem that was not created by him.