Opinion: Fiscal responsibility should also be social


The first fire test of the new president-elect takes place even before his inauguration in January 2023. The transition team presented to Congress on the last day 16 a draft asking for a license (waiver) to carry out social spending outside the ceiling for 2023.

The total invoice for this order is close to BRL 200 billion per year, on a permanent basis. Negotiations with the National Congress will likely limit the value and duration of this waiver.

For 2023, the approval of the PEC will imply an increase of 2% of GDP in public spending and will open a space of R$ 105 billion in the 2023 budget. sensitive areas, such as health, education and infrastructure.

As expected, the financial market reacted badly. However, those who believe that the bad mood is due to the risk of hyperinflation and the interest burden that would accompany the stabilization of prices are mistaken. This is out of the question, at least in specialized academic circles.

Brazilian high finance, on the other hand, equated its concept of fiscal responsibility with a mere apology for spending ceilings. This technocratic chimera is at the root of a profound cognitive dissonance. Let’s see.

Paulo Guedes admitted to having violated the ceiling, and did so at least once a year, adding R$ 795 billion in extra-ceiling spending over the four years. The market rumbled a few times, but with Benedictine leniency.

Public debt did not explode, hyperinflation did not come and a primary surplus was even observed in 2022, as a result of non-recurring revenues. The market applauded Guedes’ fiscal-electoral gimmick – after all, there is a huge distance between the ceiling and uncontrolled inflation – and now transfers the burden of fiscal irresponsibility from the current government to the elected government.

Despite the push and pull, reforming the fiscal framework can improve the quality of both spending and taxation, balancing respect for contracts and social responsibility. This is the path to fiscal responsibility that serves the entire population.

If approved at the current value, the transition PEC will raise the government’s primary expenditures in 2023 to 19.5% of GDP, a small increase over the 19% in 2022 (you can keep your imaginary money printers!).

The PEC reorganizes the budget and makes possible expenditures that stimulate the economy (real gains at the minimum wage), alleviate poverty (Bolsa Família), reinforce citizenship (daycare centers and popular pharmacy, etc.), reduce Brazil costs (infrastructure) and can attract resources multilateral banks (environmental recovery and defense programs).

Income transfers can stimulate the economy, which today is flirting with stagnation in 2023, with significant idleness in the industry. In the meantime, the definition of a new fiscal framework can help stabilize the economy in 2024 on more promising bases, based on a tax reform that reduces allocative inefficiency and regressiveness in the taxation of personal income.

It is fundamental that the negotiation of the PEC be transparent and observe the stabilization of public accounts gradually and with predictability. As a result, the financial market will see no reason to stress long-term interest rates, making credit to the productive sector more expensive and the rollover of long-term Treasury debt securities.

A government not yet sworn in cannot practice public policy; all it can do is present a set of principles. It is up to Congress to establish the means.

Therefore, it takes a little more calm and certainly a little more soul.

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