The direction that the government of President Luiz Inácio Lula da Silva (PT) will take in the economic agenda still has open questions, especially in its fiscal aspect. To explain what is being discussed, the Sheet created a glossary with expressions and concepts that appear most often in the debate.
Check out some of the main terms used in discussions about public accounts in Brazil.
FISCAL FRAMEWORK OR REGIME
Name given to the set of principles and formal rules that seek the stability of public accounts. The spending ceiling is an example of a fiscal framework, which sought to limit primary expenditures to the same amount as in the previous year corrected for inflation.
CENTRAL BANK
Government financial institution responsible for ensuring the stability of the country’s currency and regulating the financial system. Among its attributions are issuing paper money, implementing monetary policy —by controlling interest rates— and overseeing financial institutions.
COPOM
The Copom (Monetary Policy Committee) is a body of the Central Bank that meets periodically to define monetary policy guidelines and the Selic rate (basic interest rate for the economy).
DEFICIT
In accounting, it’s when expenses exceed revenues, the opposite of balance. In the case of the public deficit, when government spending is greater than revenue.
NOMINAL DEFICIT
Includes interest expenses and monetary restatement (adjustment of the amount to inflation).
PUBLIC DEBT
Debt contracted whenever the government spends more than it collects, that is, when taxes and other revenues cannot cover expenses. In order to meet the needs of public services, the government resorts to financiers, such as individuals, companies and banks.
GROSS DEBT
Covers the total debts of the federal government and regional entities (state and municipal governments) to financial and non-financial, public and private companies, including abroad.
NET DEBT
It is the gross debt minus credits receivable from all entities (federal, state, municipal, BC and state governments) and reserves (a kind of savings, in dollars) of the country.
BUDGET GUIDELINES LAW (LDO)
Law that defines the goals and priorities of the federal public administration for the following year. With a duration of one year, the LDO sets limits for the budgets of the Powers and guides the elaboration of the LOA (Annual Budget Law).
ANNUAL BUDGET LAW (LOA)
It is the budgetary law itself, with an estimate of revenue and setting of public expenditure. In practice, it indicates how the government will collect and how it will spend public resources. It lasts for one year.
INFLATION TARGET
It is the minimum or maximum value that inflation can reach in a given period. In the system adopted in Brazil, an inflation target is set for the year, with a tolerance band that provides for a higher value (ceiling) and a lower value (floor) in relation to the set value (center of the target).
FISCAL TARGET
Defines the result that the government should achieve in the year considering revenue minus expenditure.
PUBLIC BUDGET
Instrument of initiative of the Executive Power to estimate revenues and set expenses. It comprises three laws: the multi-year plan (PPA), the budgetary guidelines (LDO) and the annual budget (LOA). It is prepared in one fiscal year, approved by the Legislature, and takes effect in the following fiscal year.
GDP
Gross Domestic Product is the sum of the value of all goods and services produced in a country or region during a given period.
MULTIANNUAL PLAN (PPA)
Law that establishes guidelines, objectives and targets for public administration expenses for the next four years. It plays a central role in organizing State action.
GOLDEN RULE
Provided for in the Constitution, it requires that indebtedness does not exceed the amount of investment expenses. The goal is to avoid contracting public debt to pay current expenses, such as civil servants’ salaries and pensions.
PRIMARY OUTCOME
Indicator of the State’s financial health, consisting of the difference between revenues from the collection of taxes and fees, for example, and expenses to maintain the public machine and the provision of services to society, not including financial expenses with the payment of interest on the public debt. When revenue exceeds expenditure, the result is called a primary surplus, when expenditure is greater than revenue, there is a primary deficit.
SELIC
Selic (Special System for Liquidation and Custody) is the Central Bank system that registers trades with federal public bonds and interbank deposits. The interest rate practiced in this system serves as the basic interest rate for the Brazilian economy.
EXPENSES CEILING
Tax regime that sets limits for the primary expenses of the bodies of the Executive, Legislative and Judiciary, the Federal Public Ministry, the National Council of the Public Ministry and the Federal Public Defender’s Office.
How is the rite of approval of the Budget
The budget laws are sent as a project by the Presidency of the Republic to the National Congress. The Legislature discusses, suggests alterations, votes and, finally, approves the text.
Each of the three pieces of legislation that make up the Budget (PPA, LDO and LOA) are discussed in different periods.
The PPA is forwarded to the Legislative Power by August 31 of the beginning of the mandate. The LDO is sent to Congress every year by April 15th. The LOA project is done after the approval of the guidelines and needs to be submitted by August 31st.
The deadlines for submitting budgetary laws have put pressure on the Lula government. The Minister of Finance, Fernando Haddad (PT), needs to present a new proposal for a fiscal framework by the end of August 2023. This is because the PEC (proposed amendment to the Constitution) of Gastança increased the space in the spending ceiling for one year , not for two.
If the new model is not presented and approved, the budget laws for 2024 will necessarily follow the spending ceiling.
Tax agenda questions and answers
Why is the surplus important?
The positive difference between income and expenditure is considered a good indicator of the economic health of a country. With more revenue than spent, the government guarantees resources to pay interest on the public debt.
If debt is falling, investors demand lower rates to borrow money.
In a deficit scenario, the opposite occurs. Creditors charge more to finance government debt, which can generate a snowball effect of public debt.
Why do investors care so much about the fiscal agenda?
If a government does not present a fiscal plan to contain public debt, the tendency is for creditors to charge more to borrow money.
With more expensive interest, financing becomes less attractive, credit for the private sector becomes more expensive, which can become an obstacle to economic growth.
With no prospect of growth, investors are less motivated to invest in companies and projects in the country.
What does the fiscal agenda have to do with a country’s outlook?
As stated earlier, if a country is seen as fiscally irresponsible, interest rates tend to rise. The currency also tends to devalue, which increases the risk of extra inflation. This scenario harms economic growth and, consequently, the supply of jobs.
I have over 10 years of experience working in the news industry. I have worked for several different news organizations, including a large news website like News Bulletin 247. I am an expert in the field of economics and have written several books on the subject. I am a highly skilled writer and editor, and have a strong knowledge of social media. I am a highly respected member of the news industry, and my work has been featured in many major publications.