Analysis: Haddad preaches fiscal responsibility, but lacks the flight plan

Under pressure to improve the picture of public accounts for 2023, the Minister of Finance, Fernando Haddad (PT), gave an inaugural speech filled with messages and promises of commitment to fiscal responsibility, but the flight plan was missing.

Although the rhetoric has made a good impression on the new team’s intentions to reduce the deficit, control the debt and resume sustainable growth, the pressure that falls on a minister who has already taken office goes much further. What is expected are details of how the new government intends to achieve these goals.

It is no longer enough to evasively list priorities such as tax reform and the submission of a proposal for a new anchor for public accounts —promised for this semester—, defenses already known by the general public.

Instead of detailing what the pillars of each of these agendas will be, Haddad spent a good part of his speech responding to criticism fired by the market against him since he was chosen by President Luiz Inácio Lula da Silva (PT) to command the Treasury.

“We are not dogmatic, we are pragmatic. We want results, but we follow principles and values”, he said, listing the focus on the social as one of these principles.

The new minister also defended greater state action, although he left the door open for that presence to be leaner than imagined. Again, however, he reacted to criticism from those who fear an unbridled increase in public spending and subsidies. “A strong state is not a big state, an obese state,” he said.

The question that has not yet been answered is how these visions will be reconciled with the promise of sustainability of the accounts and to what extent Haddad will have political support to implement his agenda.

A first battle was lost in the discussion of fuel exemptions, in which the minister and his team had to give up the idea of ​​letting the exemptions implemented by President Jair Bolsonaro (PL) in an election year expire.

Lula’s order was to extend the benefits, part of them until the end of the year. The political factor and the risk of an increase in taxes, raising prices at pumps and consequently inflation, weighed in the decision.
The reversal of exemptions was one of the alternatives to help reduce the “absurd deficit of R$ 220 billion” forecast for this year.

The minister even said that he and his team will not accept that number and promised measures for the coming weeks. But, in addition to the fuel setback, the fact that the gap was deepened precisely by the approval of a PEC (proposed amendment to the Constitution) that increased spending and for which he thanked Congress was overlooked.

Haddad is right to complain about new exemptions adopted by the Bolsonaro government at the end of his term and which helped to take up to R$ 15 billion from Lula’s cash in the first year of his term, according to the preliminary calculations of the new team.

However, it is not just the reversal of these measures that will solve the fiscal impasse.

In the coming weeks, Haddad will need to deliver on what he promised and start detailing the path to be followed by the ministry under his leadership. If he intends to submit a proposal for a new fiscal rule in the first half of the year, the minister should start signaling the premises for discussion right now, in addition to the “credibility, predictability and transparency” mantra that has been chanted since the campaign.

Until today, for example, the same government that promises to put an end to the “hundred-year secrecy” has still not publicized the final reports of each of the transition groups —the Economy group had precisely as one of its missions to discuss possible formats for a new fiscal framework in the country.

During his inauguration speech, the minister himself resorted to analogies to say that Brazil “needs helmsmen” and “people who have a sense of direction”. But the crew also needs to know the route and be sure that there are no other people in the hold wanting to steer the boat in another direction.