Opinion – Vinicius Torres Freire: It is not known how much Lula 3 will spend 3, even if the PEC is approved

The latest news about the extra spending in the 2022 Budget helped bring down interest rates and the price of the dollar. It is a clear and practical example of how at least sensible economic management can compensate for the damage caused since the end of the election and go beyond.

The spending authorization in the transition spending package will only be valid for one year. That’s what Congress should impose on Lula 3, apparently. “By the way”, because, after so many changes in the agreements between the three Powers, basically unconstitutional, it is difficult to predict how the laws will be tomorrow afternoon or Sunday night.

Still, a signal seems to have been given that the license to spend would be limited. It was enough for a slight relief in financial market prices. Ultimately, this interpretation is naive, to put it mildly (more on that later in this text). But the example can be useful: prudence in spending can improve the prospects for growth and, therefore, employment.

The situation of the small life of Brazilians and the success of the next government depend, fundamentally, on a drop in interest rates, the dollar and inflationary expectations. This does not mean that success does not depend on other measures or innovations. But, in the fundamentals, in the base, in the pillars, it depends on the ease of financial conditions.

That said, too much emphasis is given, for example, to the discussion of how many years such a “license to spend” would last.

Lula 3 wanted four years, the PEC approved in the Senate gave two years and, finally, it seems that, for the time being, the license will last for one year. However, it is assumed that there will be a new “fiscal rule” (norms that define a limit for the public indebtedness and, therefore, for the expenditure, given certain income). Therefore, a new “tax rule” could limit the expenditure and the duration of the expenditure defined in the said Transition PEC.

Or not.

The text of the PEC provides that, by the end of August 2023, the new government will send to Congress a complementary bill that institutes “…a sustainable fiscal regime to guarantee the country’s macroeconomic stability and create the appropriate conditions for socioeconomic growth ” (i.e. a new tax rule).

Once this law is sanctioned, the current spending ceiling, the method of correcting expenses with health and education and all the restrictions that would be imposed if mandatory spending exceeds 95% of primary spending (basically, prohibitions on extra spending with civil servants and increased mandatory expenditure).

All of this is in the Constitution. In other words, with a complementary law, Lula 3 can change the “fiscal regime”. From there anything can come out. A sensible, feasible, flexible and realistic program to control the increase in the public debt can come out – but control. Something “for the English to see” might come out.

In summary, it is easy to see that the approval of the Transition PEC with a “license to spend” for just one year does not change much in the uncertainty about the future of the public debt, interest rates, exchange rates, inflation and economic growth.

Yes, the reduction of the “license to spend” term from four years to one year is of some importance, as it now effectively obliges Lula 3 to present a tax bill by the end of August.

If he does not present a new debt containment method, Lula 3 will be subject to the ceiling and other restrictions instituted by Michel Temer, in 2016. Why would Lula 3 do such a thing, being able to revoke articles of the Constitution, indirectly, by complementary law? To approve such a change, a simple majority of the House and Senate is enough.