2023-11-06 18:49:07
Lula’s speeches signal a lack of fiscal control, economists say
The financial market did not receive well the statements made by President Luiz Inácio Lula da Silva (PT) about not meeting the goal of reaching zero in 2024. The head of the Executive said he did not want to cut billions of reais in works and priority investments next year.
Economists consulted by Poder360 negatively evaluate a possible change in the fiscal target for 2024. In the majority’s view, Lula’s speech signals a lack of control over public accounts.
The matter is the subject of discussion within the government, but there is still no consensus on the new percentage (deficit of 0.25% or 0.5% of GDP) nor on when the change would be presented by Planalto.
Former Secretary of Economic Development of the State of São Paulo and managing partner of Gibraltar Consulting, Zeina Latif states that Lula’s relativization of the zero target “hurts the reputation” of the government. “The ideal would be to make every effort to meet the target, but the government chose to increase spending”, she states.
The economist assesses that the government “has just committed to the target” and that the way to change it is also bad. “It does not come with any commitment to fiscal adjustment. Lula’s movement was botched, a noisy process,” she says.
Jeferson Bittencourt, former secretary of the National Treasury and economist at ASA Investments, states that the contingency provided for in the new fiscal rule becomes “unlikely” with the declaration by the head of the Executive and accentuates estimates of a fiscal hole next year.
“The ideal would be to follow the rules of the framework, contingency within the limit of the rule. If the target was not met at the end of the year, the triggers of the complementary law itself should be allowed to act”, he declares.
For Bittencourt, the government’s transparency on the issue is “better” than following “unconventional measures, which do not guarantee a structural fiscal adjustment”.
Gabriel Leal de Barros, chief economist at Ryo Asset, states that the financial market has always viewed the promise of zero deficit in 2024 with “skepticism.” “The lack of a fiscal consolidation plan that includes measures on the spending side is still a factor of concern that exacerbates the macrofiscal challenge”, he assesses.
GOAL MAINTENANCE
Former Secretary of Finance and Planning of São Paulo and partner at the Warren Rena brokerage, Felipe Salto states that the best thing for the Lula government would be to maintain the goal of zeroing the deficit. “I’ve been saying this for a long time, because the framework follows this logic”, he declares.
The economist highlights that there are triggers in case of non-compliance with the fiscal objective next year. In his view, the change could compromise economic agendas in the Legislature, as well as future interest rates.
“Changing the target would be terrible, as it would discourage the approval of adjustment measures being processed in Congress and would have effects on expectations, interest rates and the trajectory of the deficit and public debt itself”, he states.
Economist André Perfeito assesses that there is an “exaggeration” in the financial market’s reaction to Lula’s statement. “The market is using Lula’s speech to review its scenarios,” he says.
In his view, it is natural that the president made the statement. “It is not possible to demand non-political speech from Lula. He is a political being. Faria Lima is very scared. In his first 2 terms, he was very responsible”, he declares.
Perfeito, however, states that the situation left the Minister of Finance, Fernando Haddad, in an uncomfortable situation. On the 2nd (Oct 30), the minister gave an interview to journalists and expressed irritation when asked about the topic at least 4 times.
“I understand Haddad’s behavior. There are many good things happening”, says the economist.
André Perfeito states that the relationship between government and Congress is more worrying, with some “bomb agendas” being approved. He mentions the payroll tax exemption for another 4 years, which should result in a cost of R$18.4 billion in 2024 alone.
For the economist, the agenda in the Legislature has been “very painful” for the government and the situation contrasts with the drop in revenue in 2023. “It is necessary to see the extent of the difficulty that the government has been facing in Congress”, he states.
LOCKS
The new fiscal rule defines a tolerance interval of 0.25 percentage points of GDP (Gross Domestic Product) for the primary balance – formed by subtracting revenues from expenses, without counting debt interest payments. Even with the goal of zero deficit, the government may have a gap of R$28.6 billion to comply with the law.
The fiscal target is not mandatory, but there are fiscal restrictions in case of non-compliance. If the primary balance is lower than the minimum band limit (-0.25 pp), the increase in expenses will be equivalent to up to 50% of revenue growth in the following year.
But before not following the rule, the government has to contingency 25% of discretionary expenses (approximately R$56 billion). If the amount does not ensure the target is met, tax penalties will be triggered.
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