BRASÍLIA – The growing fear of fiscal loss, especially in 2022, an election year – which has been stirring up the market in recent days – triggered the alert in the economic team, which is now trying to show that it remains firm in its commitment to keeping public accounts in balance.
The submission to Congress of the 2022 Budget, on the 31st, is seen as fundamental to dissipate the distrust of economic agents about the government’s accounts in an election year.
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Members of the Ministry of Economy claim that the budget will respect all fiscal rules and will be restrictive in forecasting investments and other free expenses, such as the maintenance of the public machinery, despite all the political pressure to increase expenses with works and social programs on the eve of the elections.
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The aim is to make it clear that the Ministry of Economy is meeting the spending ceiling, even if that means sacrificing so-called discretionary spending, which can be cut. The spending cap sets a limit on federal government spending that is corrected based on the previous year’s inflation.
To GLOBO, the Special Secretary for Treasury and Budget, Bruno Funchal, said that there is an “unrestricted” commitment to fiscal responsibility.
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— The entire team at the Ministry of Economy is aligned around the unrestricted commitment to fiscal responsibility and respect for the framework of the country’s rules that allow keeping public accounts organized — he said.
Yesterday, Economy Minister Paulo Guedes insisted on ensuring that there was no imbalance and that the fiscal issue “remains under control”.
— There has been talk about deficits and the possibility of lack of fiscal control. Today, there is not the slightest basis, from a strictly economic point of view, to say that Brazil is losing control – he said, during a congress on intellectual property.
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Guedes once again stated that this situation is a reflection of a scenario of political escalation and anticipation of elections. The minister stated that until 40 or 50 days ago, expectations for growth were better.
— We were really taking off and now there is a political escalation, a kind of anticipation of the elections. Evidently it had an impact on expectations.
The announcement of a replacement for Bolsa Família, with more families assisted and greater benefit, without clarity on how the new expense would be included in the Budget, and the Proposal for Amendment to the Constitution (PEC) which parcels precatórios (debts arising from final court decisions ) helped to provoke distrust in the market.
President Jair Bolsonaro wants to raise the average amount of the benefit to R$300 (against R$189 today).
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The government has also reinforced the discourse that the PEC of the precatório was precisely to avoid fiscal loss and preserve the spending ceiling and says that it is not a “default” .
— The PEC will align the treatment given to court orders with the ceiling rule, which is our main fiscal anchor, and will bring predictability to the manager to deal with this issue in the next year and in the coming years — said Funchal.
In another event yesterday, Guedes said that “it may be that the Congress itself will decide to change and remove the precatories from the ceiling”, but that the “Economy has to keep within the law”.
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The 2022 Budget will be sent to Congress without providing for an adjustment for Bolsa Família and including expenditures of R$ 89.1 billion for precatórios, without installment payments. Adjustments will only be made if the PEC is approved.
– As the PEC is being proposed now, the government will send the Congress the Budget proposing the full payment of these judicial debts, as determined by law – said the secretary.
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For Felipe Salto, executive director of the Independent Fiscal Institution (IFI), the PEC is a problem because it changes the rules of the game.
— The reading is that the government is changing the rules of the game to benefit the current government. So much so that the interest curve rose a lot for all maturities. This is clearly associated with the fiscal problem,” he said.
Guilherme Tinoco, a specialist in public accounts, says that the uncertainties caused by the reform of the Income Tax are also a concern:
“People used to hope to pass good reforms. But in two months, not having a bad reform turned into a profit. People began to hope that bad reforms do not pass. Maybe that was a key turning point.
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Next year’s Budget should foresee a deficit of R$ 70 billion, well below the official authorization by Congress (R$ 170 billion), due to the increase in tax collection. The government will wait for the best political moment to propose a formal change.
Setting a tighter target also puts a brake on Congress’s impetus to increase spending or to make decisions that reduce government revenues.
The shackles of public spending
Spending ceiling: limited to inflation
- The ceiling is considered the main fiscal rule in the country, the “anchor” for public accounts. Approved in 2016, the rule limits the growth of the Union’s expenses to the inflation of the previous year. This insures investments and other machine costing expenses.
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Fiscal Responsibility Law
- Main legal framework focused on fiscal responsibility, the LRF brings a series of parameters for public accounts. Among them, it says that a permanent expense can only be made if there is permanent income or expenditure cuts.
Golden rule: debt only to invest
- Original rule of the 1988 Constitution, the golden rule says that the government can only get into debt to fund investments. But since 2019, given the constant deficits, Congress has authorized the breach of the rule.
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Fiscal target sets the government’s result
- The fiscal target determines how much deficit or surplus the government should have in the year. When revenue falls, the government blocks expenditures to stay within the fiscal target, limiting resources. When the collection grows, there is the opposite.
Fernanda Trisotto collaborated