Finance Secretary says fiscal rule will focus on spending control

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The Secretary for Economic Policy at the Ministry of Finance, Guilherme Mello, said that controlling expenses is the best instrument to manage the trajectory of the public debt and that this idea is being taken into account in the preparation of the new fiscal framework by the Lula government.

He participated in the Latin America Investment Conference event, promoted by Credit Suisse.

Mello stated that the next Brazilian fiscal framework has to dialogue with the new global trends and be a rule that points out the trajectory of some central variables, among them, the public debt. According to him, with an instrument to deal with it, which is the primary result.

“And that there be a rule that works with a public spending horizon, which is what the government has more control over. It has some over revenue, but it has more control over spending,” he said.

He said that the Ministry of Finance should close a proposal in the coming months, which will still need to go through the Presidency of the Republic. But the idea is that it be presented in time to guide the formulation of the LDO (Budget Guidelines Law) of 2024, in April.

A rule with a set of instruments to try to control the trajectory of the public debt. “Public spending is the possible instrument to carry out this control,” he said.

The secretary said that there is a third generation of post-Covid rules in the world, which aim to guarantee simplicity, debt sustainability, which is the main objective of fiscal policy, and a degree of flexibility to resist possible shocks.

“We are still building this proposal. It is not something that is ready. The international trend is the medium-term fiscal framework.”

Asked about the possibility of changing the inflation targets, he said that this is not under discussion in the ministry and that this is a premature debate.

Tax reform

Mello reaffirmed that the reform of the fiscal and tax framework can, together, help to improve the business environment, reduce risk premiums and, thus, contribute to the fall of inflation and the basic interest rate.

“A new fiscal framework and a new tax framework. These two changes have all the conditions to be approved by Parliament and take Brazil to another level.”

He stated that the government can quickly recover the Brazilian primary result, which was in surplus in the last two years, but should be negative in 2023.

Asked about possible changes in inflation targets, he said that this debate is very premature and that every government wants to reduce interest rates and, at the same time, inflation.

“It’s up to us [Ministério da Fazenda] present the reforms and measures that guarantee the reduction of risk premiums and allow the Central Bank to take measures on the monetary policy side.”

labor reform

The secretary was also questioned about a possible repeal of the labor reform and said that what is on the government’s agenda are adjustments to the legislation that will be discussed with employers and workers.

“What was discussed was not any type of repeal. There are aspects of labor legislation that need to be rethought, including in the light of international experience,” he said, citing the issue of protection for some categories and adaptation to new forms of work.

businessmen

At another debate table, businessman Abilio Diniz, chairman of the Board of Península Participações, stated that the data for 2022 showed that Brazil does not have a major problem in terms of public debt, but something that is possible to manage.

However, he showed concern about inflation. “She’s coming back. It’s not that falling number we had until December. This is dangerous. It’s a complicated time.”

The executive also said that the country currently has the best environment to receive foreign capital among the Brics (a group that also includes China, Russia, South Africa and India).

“What the investor who comes here asks for, in addition to opportunity, is legal and political security.”

The businessman praised the new government and said that the government needs to rely on the private sector for the country to grow and become “that Bric” that everyone expects.

“I have no fear of the Lula government. I consider Lula a pragmatic person, who loves this country and wants to go down in history with the things he is going to do and has already done,” he said.

“Now, it is not possible to think about growing only with state savings. No matter how much the government puts something here or there, it is not enough. It needs the private sector.”

Businessman Rubens Menin, president of MRV, Banco Inter and CNN Brasil, also highlighted last year’s good fiscal results and said that the important thing is not to spoil it.

“The discussion we have to have in Brazil is how to create conditions for interest rates to drop in a sustainable way. There’s no point in lowering them dictatorially, as has already been done, because it won’t work,” he said.

Asked about the possibility of approving a consumer tax reform, he said that a broad reform is unlikely to come out, but that it is possible to take one or two steps.

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