Opinion – Why? Economês in good Portuguese: Why is fiscal irresponsibility a bad social policy?

The Brazilian government needs a new fiscal anchor, capable of guaranteeing the long-term stability of public accounts and debt sustainability. Until recently, the spending cap fulfilled this role. However, with the various exceptions implemented recently, the ceiling is severely weakened.

We would have a new “hole” in the ceiling in 2023, regardless of who was elected. That was already on everyone’s account. After all, several spending pledges were made by both candidates.

The point is to signal to the future that there are conditions to put the public accounts in order. Here comes the tax rule. During the campaign, President-elect Lula’s team even said that we would have a rule, but without going into details.

Last week, however, Lula spoke about the economy (and public accounts), and the sign was not good.

By downplaying the fiscal issue, Lula sent the financial markets into a tailspin. The dollar skyrocketed and the stock market plummeted. All of this was against the grain of what was happening in the rest of the world, where the stock market was rising.

Flirting with fiscal irresponsibility goes against the main objective declared by the president-elect: to reduce poverty and inequality.

Without a firmer signal on the fiscal issue, the perceived chances increase that creditors will be left unpaid or that their income will be eroded by higher inflation.

To continue financing the government (which needs these loan resources, as it spends more than it collects), they start to charge a higher premium. The result is higher interest rates.

With that, the government also needs to transfer more resources to creditors, who are among the richest people in society.

This goes against the objective of social policies to reduce inequality. Higher interest rates on government bonds still influence other rates, making credit more expensive for everyone.

Additionally, the chances grow that, at some point in the future, the government will despair and finance itself by issuing money —generating a scenario of permanently higher inflation. Nor is it something that helps the poorest.

And there are immediate repercussions. With the perception of messier accounts, the country has already become less attractive, making the dollar more expensive. This puts pressure on the prices of products and inputs that the country exports or imports, increasing the cost of living.

It is still possible to change this perception. We await the scenes of the next chapters. Meanwhile, with the uncertainty, we will continue with instability