Opinion – Samuel Pessôa: Will Brazilian democracy be able to reform itself?

In an interview with journalist Maria Cristina Fernandes, from Valor Econômico, published on January 3, the former finance minister, ambassador and former secretary general of the Unctad Rubens Ricupero reminded us that the current political regime shows signs of exhaustion.

In the words of the ambassador: “A system is born, lives and dies. It just doesn’t die when it reforms itself. There are systems that have this capacity. Without wanting to give it a fetishistic character. Brazilian regimes don’t last more than 40 years.”

This is the biggest challenge facing our society. Will we be able to reform the system and make it respond to society’s needs? Since 2013, the social contract of redemocratization has shown signs of exhaustion. The social contract of redemocratization —society’s desire expressed in the 1988 constitutional text, to build a continental European-standard welfare state in Brazil— generated a strong expansion of the tax burden and low economic growth.

The focus on equity and the various income transfer and social insurance programs greatly reduced the public sector’s investment capacity, especially in urban infrastructure. The significant private gains, with the improvement of living conditions and the domestic environment, in addition to the increase in the consumption of private goods, were not accompanied by an advance in the supply of collective consumption goods.

The exhaustion of the State’s fiscal capacity is the clearest sign of the exhaustion of a political system, to use Ambassador Ricupero’s expression. In 1962, Celso Furtado, our most influential economist, still superintendent of Sudene (he would later be appointed Minister of Planning in the João Goulart government, still under Parliament, in September 1962), wrote in his manifesto book “A Pré-Revolução Brasileira “:

“Thus, this obvious contradiction that we live today arose: public opinion of the State demands the performance of important functions linked to the economic and social development of the country, but, through its representatives, in Parliament, this same public opinion denies the means that the State needs to fulfill this mission. The practical consequence, we all know it: are the deficits of the public sector and its financing with simple issues of paper money. The fact that Parliament does not enable the administration to collecting the taxes it needs and at the same time increasing government spending on development functions every day clearly reflects the great contradiction that currently exists in national political life”.

Furtado saw very clearly the 1964 military coup on the way. And the latter arbitrated the distributive conflict: between 1964 and 1970, the tax burden rose nine percentage points of GDP. According to a recent calculation by the IFI (Independent Fiscal Institution), the Union’s structural primary deficit —that is, the one already adjusted to the economic cycle— was 0.5% of GDP in 2021.

Under the assumption that states and municipalities balance their accounts, the Union needs to present a surplus of 2.5% of GDP. Thus, the next president, with the help of the National Congress, will have to promote a fiscal adjustment of 3% of GDP, approximately R$ 270 billion. This is a much bigger challenge than the one faced by Lula in 2002 and very close to the adjustment made by FHC in 1999.

If the next president-elect manages to promote an adjustment of this magnitude – it will be through a combination of tax increases, spending cuts and subsidies – the political system will have managed to arbitrate our distributive conflict without breaking the political regime.