Opinion – Vinicius Torres Freire: Congress wants Lula on the ropes in the bargain for increased spending

The leaders of the group in power in Congress say that the vote on the “PEC da Transição” will be negotiated according to two criteria: 1) “One hand washes the other”; 2) Maintain bargaining power.

The “hand that washes the other”: Luiz Inácio Lula da Silva gives explicit or veiled support to the re-election of Arthur Lira (PP-AL) and Rodrigo Pacheco (União Brasil-MG) for the command of Chamber and Senate, respectively; the “PEC of Transition” passes.

“Bargaining power”: Congress approves extraordinary spending, in addition to that provided for in the 2023 Budget project.

Several parliamentarians say that, in addition to maintaining bargaining power and pressure on the government, now approving extraordinary spending only for 2023 would make “economic sense”. That is, it would be necessary to know the new debt, expenditure and deficit containment plan (which in theory will replace the “ceiling”) before thinking about the size of the expenditure from 2024 onwards.

Anyway, the idea of ​​the leaders of power in the Chamber, basically the centrão, and senators is to force the Lula government to renegotiate later on.

Furthermore, there must be some flaw in the proposal for the “Transition PEC”. Instead of almost BRL 200 billion, it could be something between BRL 130 billion and BRL 180 billion.

That said, discussions of spending caps in 2023 and what falls under or outside the cap are misplaced or may be irrelevant.

Much importance has been given to the possibility that spending on Bolsa Família will be “permanently” outside the ceiling. It may be important, while there is no other rule limiting spending besides that of 2016, Michel Temer’s ceiling. But the subject may become irrelevant, depending on the “new fiscal rule”.

Imagine that Bolsa Família stays “forever” outside the ceiling (which ceiling, by the way?). However, there may be a new fiscal rule that you have to limit spending growth in order to make the debt fall at that rate, to that level.

That is, even if the “new ceiling” authorizes spending up to a certain limit, the requirement to contain the debt may prevent spending up to that limit. So, in this case, it doesn’t matter whether the “ceiling exclusion” is permanent or not.

This is the meaning of the best debt containment proposals presented so far, such as those by Felipe Salto, São Paulo’s finance secretary, and Armínio Fraga and Marcos Mendes.

The discussion of the additional 2023 spending is on hold for several reasons. Even if spending is limited from 2024, as suggested by congressional leaders or even the “transition” to Lula 3, the size of the extra spending in 2023 will have implications for the following years.

An extra expenditure of BRL 80 billion in 2023 already tends to bring the public debt close to 80% of GDP at the end of the Lula government, given GDP growth of 2% per year, real interest of 3.5% per year year and federal revenue of 18.5% of GDP in this period.

But it may well be that, with the prospect of debt falling any time soon, interest rates will remain high and growth low. This combination further increases the size of the debt.

Please pay attention: this is a hypothesis of extra spending of BRL 80 billion. The situation gets worse with a higher expense, of course.

Yes, it is possible to “see it later”. If there is no explosive event, then it would be necessary to make a very tough cut in expenses and a big tax increase. The account will end up getting more expensive. Otherwise, the debt will rise without limit. Or else, a “miracle of growth” is expected, with GDP increasing at more than 3% per year, with low inflation and interest rates falling immediately next year. Difficult.