Increased public spending will cause higher tax burden, says economist

Amidst uncertainties in the fiscal scenario after the approval of the PEC dos Precatório to increase public spending, the former secretary of the National Treasury Ana Paula Vescovi stated that the increase in these expenses will cause a higher tax burden for Brazilians.

“We are without a fiscal anchor to give credibility in a relatively medium-term horizon. If we see, consecutively, an increase in public spending, soon we will have to increase the tax burden in Brazil again. We already have high debt, much higher than in emerging countries. We are back to the counterproductive effects of the increase in public spending”, stated Ana Paula Vescovi.

“We’ve gone through this experience before. The condition of generating jobs, of meeting the increase in the income of the most vulnerable classes, this was successful in Brazil. What went wrong was to spend more than it can, make the public debt grow, generate inflation, which takes income from the poorest, makes the BC have an overload to act only with monetary policy – the Selic – to control inflation , this generates high interest rates, triggering a recession”, assesses the economist.

Vescovi says the country is in a “long-standing process of loss and worsening of Brazil’s financial conditions”.

“Foreign exchange depreciation, more inflation, rising interest rates, BC having to increase this rise, this contains growth. As a matter of short term, the market prefers to accept a situation that generates less uncertainty. So, the approval of the PEC [dos Precatórios] took some of the uncertainty out. This leads to that feeling of improvement. But we are projecting worse inflation rates, higher interest rates, noticing difficulties at the BC. If we see an increase in public spending, there is uncertainty.”

And inflation, she says, is also a way of financing public spending. “Brazil has been in deficit for over 7 years, we are not collecting enough to pay our bills. “There is only one way to pay our bills: to redo the public budget, because there is no shortage of money, giving priority to those who really need the state the most and, without it, cannot live,” said Vescovi.

“The most important thing to keep in mind at this point is that this PEC changes the essence of the spending ceiling, which was our main anchor.”

*published by Ana Carolina Nunes