The discussion on the possible fiscal policy of the next government advanced some important houses. In recent days, three different proposals for a new fiscal framework were presented in Brasília, and the three coincide in the plan to abandon the spending ceiling and adopt the debt as the new reference for controlling public accounts. At the same time, the leader of the PT in the Chamber, Reginaldo Lopes (MG), recognizes that targeting the debt is “a good path” for the debate. It is the first time that a PT leadership shows sympathy for the issue.
After the second round, the political world in Brasília spent a good part of the first two post-election weeks thinking about how much the license to spend in 2023 should be. The focus on spending displeased the economic world, which demanded progress in the conversation about counterparts.
But now, this agenda, less popular for politicians – but very important for economists – seems to finally be starting to move forward.
On Monday (14), the National Treasury presented a detailed proposal for a new fiscal anchor that proposes to end the spending ceiling and adopt a new system that allows for a real increase in expenses whenever the debt falls. The text, therefore, changes the focus of the discussion from expenses to the level of indebtedness. This is the first – and most detailed – of the proposals on the table, but it comes with the approval of the Jair Bolsonaro (PL) government team, which will leave Brasília in 45 days.
Faced with this scenario of transition between governments, the second proposal gains prominence. This text was prepared by Felipe Salto, Secretary of Finance of the São Paulo State government. Just like the Treasury, he suggests that the debt trend be used as a benchmark to determine whether spending can see real growth.
The draft written by Salto was delivered to Geraldo Alckmin (PSB), vice-president-elect, and Persio Arida, member of the economic transition team. In Brasilia, Salto is mentioned as a possible name for the National Treasury in the government of Luiz Inácio Lula da Silva (PT).
The third proposal came from the National Congress and goes along the same lines. Senator José Serra (PSDB-SP) announced on Monday that he is collecting signatures to present a Proposed Amendment to the Constitution (PEC) to replace the ceiling with a new mechanism based on the evolution of the public debt.
EN: It’s a good way
At the same time that the proposals were put on the table, the PT’s first reaction was positive. In an interview with CNN Primetime, PT leader in the Chamber, Reginaldo Lopes, agrees that the discussion on a new fiscal framework should look at the public debt. “I believe so,” he replied. “It is possible, in eight years, to reduce the public debt, which is more than 80% [do PIB] to around 50%”, he commented, stating that it is necessary to “modernize tax rules”.
Lopes follows the Transition PEC process – and is not part of the group that discusses the fiscal rules, but the deputy recognizes that targeting the debt seems appropriate. “As an economist, I can say that it is a good path”.
Debt x spending cap
The public debt is, historically, the main reference for international economists and investors. The financial market understands that, when a country has debt under control, there is good management of the accounts and that government ends up being seen as more reliable and a good payer. Thus, interest rates fall and there is a greater flow of foreign investment.
The existing rule is the spending cap, which sets a limit on government spending so that public accounts are controlled and well managed. When this condition is reached, the public debt ends up falling as a result. The problem is that, since the adoption in 2017, the ceiling has been breached several times in 2020, 2021 and 2022 – and there is already a consensus for the ceiling to be breached again in 2023. That is, in practice, there are more years of disrespect than compliance with the rule.
Source: CNN Brasil
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