Opinion – Vinicius Torres Freire: Transition government is high-level, but Lula needs a finance minister now

Luiz Inácio Lula da Silva is appointing high-level people to his transitional government, as has been the known case of the economy, social assistance and education so far. Very good. It negotiates the inevitable increase in spending on the Novo Bolsa Família. By leaps and bounds.

In the stride, it is speculated that they can increase the expense even more, “everything for the social”. It is not a good idea to leave a high and permanent expense, right away, to the next finance minister, which will plaster your options, to put it mildly. It would be convenient to appoint a minister as soon as possible, someone with the authority to work out the plan with Lula, for the transition and beyond.

The extra “license to spend” bills in 2023 are still imprecise, incomplete, confusing or, depending on the source, downright crazy. As far as is known at the moment, the idea is to take something like R$ 175 billion to R$ 185 billion from the “spending ceiling”, to make the Novo Bolsa Família and some other social expenditure.

At the end of the day, if they stop there, this increase in social expenditure would mean an extra primary deficit of around R$80 billion (primary deficit: revenue minus expenditure, disregarding debt interest expenses).

Taking into account projections in the draft Budget for next year, the deficit would increase to 1.4% of GDP. It would be the fifth largest primary deficit since 1991 (excluding the epidemic’s 2020 exceptional burst of 10% of GDP).

Much? In 2016, the deficit was 2.5% of GDP, a record, apart from the first year of the epidemic. Michel Temer broke into the safe, spent more and then locked the ceiling.

Temer’s result looks much worse, but the country was at the bottom of the Great Recession. The federal government’s net revenue was only 17.4% of GDP. Now, it’s around 19.5% of GDP. The record revenue was recorded in 2010, the last year of Lula 2, with 20.2% of GDP.

In other words, this deficit kick of 1.4% of GDP for Lula 3’s first year is much smaller than Temer’s 2.5% of GDP. But the revenue is now much higher and the possibilities of increasing the collection much more are smaller.

To make matters worse, more spending is demanded and Lula 3 intends to give up large revenue, with the idea of ​​increasing the Income Tax exemption (individual) without knowing what he will put in place.

Lula may even be able to make up for the hole by charging more tax from the richest, for example (if Congress lets him). However, the problem now is how to increase revenue in order to cover necessary expenditures and contain the deficit, the increase in public debt.

This is just a small illustration of one of the problems ahead. The most serious of them is inventing a “Lula ceiling”, some way to contain the unlimited growth of debt (a “new fiscal rule”).

A good, credible fiscal rule, supported by a respected economic team, with the political backing of Lula and the parliamentary coalition, can offset the effect of the expenditure burst at the turn of 2023. If the package of economists, fiscal rule and the plan for changes economic conditions is really good, it is even possible that we will have an appreciation of the real, inflation at a faster drop and a drop in interest rates in the market place — if the broth doesn’t thicken a lot in the world economy. The wind turns.

In this moment of global financial tension, Brazil is even well among the emerging countries. Rebuilding foreign affairs, environmental leadership, and economic stabilization can bring in money.

For this change to start soon and the transition not leave a bomb for the next finance minister, it is necessary to define a respectable economic team as soon as possible.