It is possible to increase benefits without the PEC of Precatório, says economist

The approval of the PEC of Precatório has been placed as an important factor to enable the creation of a new social benefit, the Brazil Aid. But, for Paula Magalhães, chief economist at the AC Pastore consultancy, it is possible to increase benefits without the proposal, respecting the spending ceiling.

“I think the best would be not to have the PEC of Precatório or extraordinary expenses, yes to increase the aid, but within the spending ceiling existing, what is possible to do”, said Magalhães in an interview with CNN Brasil.

For the economist, there is still a possibility of modifying the PEC, which was approved by the Chamber and now it is in the Senate, but “we still see this approval scenario as negative, as it is a change in the spending ceiling”. According to her, the approval of the proposal brought relief in the market because without it “it would be worse”, with the possibility of the government using a decree of calamity to increase spending.

“The market’s understanding was that the PEC is something less worse, but that does not mean that it is good”, he says. The economist considers that recent speeches by the Minister of Economy, Paulo Guedes, in defense of the ceiling are an attempt to “bring a warm tone to the situation”;

“What is being done is that the spending ceiling is a rule designed to discuss where to allocate spending, with a limit and providing predictability in spending. When it started to interfere with the government’s plans to increase spending, it was modified, which assures me that it will not be modified again later on?”, he asks.

With that, she sees an approval of the PEC dos Precatório as the end of a fiscal anchor. The bill would need to be approved by the end of the year because the government cannot increase spending in electoral years, which is linked to the choice to start paying Brazil Aid in November, ending the family allowance it’s the Emergency Assistance.

However, the economist says that this quick approval process involves an increase in spending for Congress. “The space that the PEC will open is much larger than what it needs for Brazil Aid, it needs R$ 47 billion but it opens above R$ 90 billion, so other expenses will be placed in there, that’s what they say of amendments of the rapporteur, increase of fundão [eleitoral]”.

According to Magalhães, the most likely thing today is that the PEC dos Precatório will be approved, even facing difficulties in the Senate. Regarding possible changes to the text that could please the market, the economist cites the removal of the change in the ceiling indexation by the HICP, which would use the November indicator as a reference, no longer than January.

“If this were removed, a space of R$50 billion would fall, which would be opened, this would be read as a space behind the attack on the spending ceiling. But it looks like a difficult scenario.”

“In addition to being an important rule, [o teto] it is also a symbol, an indication of where government spending will be reallocated in the coming years, but [a PEC] it took away this predictability and attacked a symbol”, he says.

Although she considers that the increase in income with the aid could increase the population’s purchasing power in a scenario of inflation on the rise, Magalhães claims that the loss of the fiscal anchor should force the Central Bank to raise interest rates further.

With this tightening, there is a risk that the economy will slow down even more in 2022, which would make investments and hiring difficult and would negatively impact household income. “I tend to think that the PEC balance is negative, I would prefer it to increase income within the spending ceiling, so as not to have this negative effect on the economy”, he says.

Added to the still uncertain presidential election scenario, the economist says that “there will be a very difficult scenario for next year”.