2023-04-18 21:30:53
© Reuters. 1 real coins 10/15/2010 REUTERS/Bruno Domingos
By Bernardo Caram
BRASILIA (Reuters) – The government presented on Tuesday the proposal for a fiscal framework that will be sent to Congress, establishing that expenses can grow up to 70% of the increase observed in recurring revenues, aiming to give sustainability to the trajectory of the public debt, in addition to define minimum and maximum limits for the increase in expenses.
The proposed fiscal rules seek to replace the current spending cap, which is more rigid and criticized by President Luiz Inacio Lula da Silva for limiting public spending growth only to the previous year’s inflation.
The text, released by the Ministry of Finance, follows the premises presented by the economic team at the end of March, when it disclosed the general lines of the proposal.
For the period from 2024 to 2027, the rule establishes that public expenditure cannot grow by more than 70% of the variation in the government’s recurring net revenue. There will also be a floor and a ceiling to guide this growth in expenses, which may vary annually between 0.6% and 2.5% above inflation.
The expenditure norm will be combined with the primary result target –a target to be pursued taking into account the difference between revenues and expenditures, without considering expenditure on debt interest. While the current system has a target with no margin, the target will have a tolerance of plus or minus 0.25 percentage points of GDP.
If the band floor is not respected, there will be a stronger limitation for the growth of expenses, with the margin for expanding expenses in the following year falling from 70% to 50% of the increase in revenues.
The text does not create specific triggers for correcting course and reducing expenses, leaving it to the incumbent government to decide politically which areas will suffer cuts if necessary.
The government’s objective with the rule is to reach zero deficit in 2024 and surpluses of 0.5% in 2025 and 1.0% in 2026.
The measure also defines a floor for public investments in the amount corresponding to that observed in the 2023 Budget, estimated at 75 billion reais, a level that will be corrected annually by inflation.
As a way of encouraging governments to improve their accounts, when the ceiling of the fiscal target is exceeded, part of the excess revenue can be converted into investment spending. This additional expense will be limited to 25 billion reais per year, adjusted for inflation.
As with the ceiling, the new framework will have exceptions to the spending rule, a list of more than ten types of disbursements that will not be accounted for in the annual limits, such as state capitalization and spending in emergency situations.
Due to the design of the measure, which foresees an improvement in the public debt, but authorizes a continuous increase in real expenses, the fiscal adjustment will have a relevant contribution from measures that raise revenues.
Part of the actions was announced by the Minister of Finance, Fernando Haddad, but it still depends on formalization, such as the taxation of sports betting and the restriction of the tax benefit of the Income Tax of companies.
On one of the fronts, the one that would close the siege to e-commerce sites by ending the exemption for orders of up to 50 dollars from abroad, the government backed down and announced this Tuesday that it had given up adopting the measure.
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