Reducing parliamentary expenditures will help solve the impasse of the spending ceiling – 10/22/2021 – Market

NS The federal spending cap was introduced in late 2016 To anchor a commitment to fiscal sustainability in the federal constitution and, in practice, to curb the strong expansion of primary spending, which rose from 14% to about 20% of GDP, compared to 1997 and 2016.

The introduction of the financial anchor was a decisive factor in the subsequent improvement in financial conditions and the recovery of the Brazilian economy. Spending fell to 19% of GDP in 2019. However, primary spending was not capped, being lower than in 2017-2020 and possibly in 2021.

For 2022, there was a good chance that spending would continue on its downward trajectory, due to rising inflation and the end of pandemic-related expenditures. It will also be the first year that the cap actually represents a limit on federal spending.

Intended changes with Proposed Constitutional Amendment No. 23 of 2021, is under analysis Parliament, making the country’s future financial scenario highly uncertain. The analysis of this scenario is for the next opportunity, but the effects on the financial conditions of the Brazilian economy are already evident, at the expense of projected economic growth for 2022.

The proposal changes the base of the roof to Absorbing expenditures that can exceed R$90 billion, in the 2022 budget. The space is created by limiting the payment of court orders and court rulings and excluding the deferred amount ceiling. Additionally, the proposal foresees the change to the ceiling correction rule, scheduled for 2026, in order to extend the 2022 cap.

The impetus for the proposal, which appears to have support, is the need to accommodate the 2022 cap “unexpected” expenditures by court orders, and expenditures with the announced change in Brazil Aid and the strong demand for parliamentary amendments, including the scheduled, where there will be a general election in 2022.

In fact, with these additional expenditures, the adjustment burden cannot fall on R$ 98.6 billion in discretionary expenditures (without adjustments), especially investment, which has already been sacrificed a lot since 2016. However, it will also be possible to reduce expenditures With the amendments, especially those of the decision, excluding 16.2 billion Rls from the maximum court orders previously issued by Fundef, as defended by the independent financial institution.

However, the main point to highlight is another. Was there an error in the design of the roof or was there a lack of complementary provisions to support it?

The initial version of the roof did not predict how to initiate adjustment actions (“triggers”) when the roof is threatened. It will not be difficult to solve this problem. device Constitutional Amendment No. 109, from 2021, but chose a condition that can only be fulfilled when the functioning of the public organ is already in jeopardy.

As for the measures aimed at supporting the roof, it did not come. The cap is intended to reduce expenditures, but also to clarify priorities and lead to actions corresponding to the choices. If, for the duration of the cap, low-priority expenditures were controlled and/or the activation of ‘catalysts’ was made possible, the investment would not have been sacrificed so much, perhaps ‘selecting Sophia’ to cater to vulnerable populations.

Furthermore. Measures were taken that made it more difficult for the surface to survive than to preserve it. For example, constitutional changes have increased the weight of parliamentary amendments within discretionary spending, further reducing fiscal management’s room for maneuver.

In any case, the current state of the roof is not the work of fate. It resulted from a combination of actions and inaction. The rule persisted in essence as long as it did not represent an effective expense limit, although it played an important role in shaping expectations regarding financial sustainability. But when the limit is reached…