Economic team wants to shield Bolsonaro’s budget against spending

After the approval of the PEC (proposed amendment to the Constitution) of the Precatório, which will open an additional space of R$ 106.1 billion in the Budget, the economic team of the Jair Bolsonaro (PL) government wants to lock the safe with a “cable of steel” in an attempt to get through 2022 without risking an electoral spree.

Although expenses are limited by the spending ceiling, now expanded, there are fears of new attempts to raise civil servants or implement diesel aid for truck drivers, promised by Bolsonaro to mitigate the rise in fuel prices, but which so far did not come out of the paper.

Economists outside the government, however, are skeptical about the ability of minister Paulo Guedes’ (Economics) team to stop the pressure.

They also warn of the possibility of using other instruments, such as tax waivers and subsidies via public banks, to grant benefits without running into the expense limit.

With the hike in interest rates promoted by the Central Bank to contain the acceleration of inflation, specialists see a favorable scenario for companies and members of Congress asking for cheaper credit, sponsored by official financial institutions.

The correction of the IR (Income Tax) table, which removes government revenue but results in lower taxation for families, is also on the radar as one of the measures with electoral appeal.

The refinancing of taxpayers’ tax debts, in turn, is already under discussion in the Legislative.

Assistants to the minister see a “high risk” that the dispute for the Planalto Palace will motivate strong pressure for populist measures, but highlight the need to maintain fiscal rigor to avoid uncontrolled accounts.

In October, Guedes lost four team members after the president hammered out a change in the spending ceiling, which would pave the way for the payment of Auxílio Brasil of at least R$400 by the end of 2022, the year in which Bolsonaro will seek re-election.

The minister has sought, in public appearances, to highlight the improvement in the fiscal situation — the deficit of R$ 53.4 billion accumulated in the year until October is the smallest for the period since 2015 —, but he has already admitted that the change in the spending ceiling more is politically opportunistic, though technically defensible.

According to Guedes’ assistants, the focus now is to limit changes to the PEC, which is already in the final stages of processing in Congress, without making room for new attacks that threaten the country’s fiscal credibility.

The mission is likened to crossing a turbulent river: you have to launch a current and keep hanging on to it so you don’t get carried away by the current.

Allies of the minister say that the head of the economic team is not a partisan and adheres to his principles of controlling expenses and reducing the State’s participation in the economy.

In the political wing of the government and in Congress, however, there is an appetite for measures that result in more spending or less revenue. The president himself once again defended the readjustment for public servants, although there is no money in the budget to pay for the expense.

“It would have [de ser reajuste de] 3%, 4%, 5%, 2%… Let it be 1%. This is the idea. Because we are completing three years in my government without readjustment. Now, the readjustment is not to restore all the inflation, because we don’t have space for that”, Bolsonaro said in an interview to Gazeta do Povo on Wednesday (8).

Amid the pressure for readjustments, Guedes and the secretaries responsible for the personnel area receive this Monday (13) the minister Anderson Torres (Justice) and the general directors of the Federal Police, Federal Highway Police and Depen (Penitentiary Department ). The expectation is that the agenda is the correction of remuneration for the category.

Marcos Mendes, researcher at Insper and columnist at leaf, sees the lack of control of fiscal policy by the Ministry of Economy. “The PEC dos Precatório is just an episode in a bigger picture”, he affirmed.

“The political interests are in charge now, both in Congress and in the political wing of the government,” he said.

For Mendes, the main threats are Refis to renegotiate tax debts, the renewal of tax benefits for companies, the pressure to grant subsidized credit by public banks and the so-called parafiscal policies, using resources outside the Budget, such as the FGTS (Guarantee Fund for Employment Period).

“The roof itself has mechanisms to pierce it, such as the capitalization of state-owned companies,” stated the Insper researcher.

The ceiling rule allows funding to non-dependent companies without bumping into the expense limit, an expedient that was used in 2019 to enable the construction of Navy ships.

The episode yielded a warning in the analysis of government accounts by the TCU (Court of Accounts of the Union).

The partner and chief economist of RPS Capital, Gabriel Leal de Barros, also sees the risk of using public banks to boost the credit of companies and families, in addition to the reduction of government revenue through the correction of the IR table.

“The list of demands is huge and it will be difficult to hold the pressure,” said Barros, who was also director of the IFI (Independent Fiscal Institution, linked to the Senate). For him, the PEC dos Precatórios has already set a precedent for the accommodation of political interests.

Senator Angelo Coronel (PSD-BA) reporting the reform of the Income Tax in the Senate stated that the issue of correcting the table for individuals should return to the agenda in early 2022, after the parliamentary recess.

According to him, the topic was discussed with the president of the House, Rodrigo Pacheco (PSD-MG), on Wednesday.

“I’m looking to extend the exemption [do Imposto de Renda] for those who earn up to R$ 3,300. This would benefit 19 million taxpayers,” he said.

The senator said he had not received estimates of the impact of the change from the economy. In the proposal sent by the government, the exemption range would increase from R$1,900 to R$2,500.

Critic of the original design of the spending ceiling and also of the recent change, economist Fabio Terra, a professor at the Federal University of ABC, questions the strength that the economy will have to stop electoral pressure.

He recalls that Guedes made an uncompromising defense of the expense limit, but was condescending to the PEC. “It is a speech that plays on ambiguity. What strength will the Ministry of Economy have to face this [pressão por gastos]?” asked Terra.

Despite this, the professor emphasizes that some demands are pertinent and deserve to be discussed, such as the expansion of the social program.