By GILBERTO MARINGONI*
Fiscal adjustment is always a state intervention in the correlation of forces in society, in favor of those at the top.
In January 2025, we entered the 15th year of uninterrupted fiscal adjustment, which began when President Dilma Rousseff's first government took office in January 2011. As we know, that administration's economic metric was the decline of the State's role as a driver of development.
Economist Denise Lobato Gentil summarized the parameters of the time well: “The fiscal policy of containing spending (especially investment), the package of tax breaks and public-private partnerships were indicative elements of the new direction. The most characteristic feature of the fiscal policy of the Dilma Rousseff government, however, was, without a doubt, the sharp slowdown (and instability) of public investment”. The adjustment from that date to the present day has had varied nuances and impulses, but the guideline was the same: to reduce public spending.
A decade and a half later, what do we have? The Minister of Finance opens the year 2025 with an article in Folha de S. Paul, praising the fact that “In 2024, Brazil made the sixth largest fiscal adjustment in the world, being the third largest among emerging countries, according to the IMF”. What does this mean?
It is possible that a government, pressured by high finance, may at some point be forced to make a fiscal adjustment. This is understandable. It is a necessary retreat to gain strength and time to advance other agendas. But turning a problem into a virtue goes beyond retreat and enters the dangerous terrain of political and – I am going to use a swear word! – ideological capitulation. Fiscal adjustment is always a state intervention in the – sorry! – correlation of forces in society, in favor of those at the top. It implies cuts, contingencies and budget reductions in the functioning of the State, especially for those who need it most, the poor. Basically, it is a process of income concentration.
Several governments in Latin America, on both the left and the right, are adopting fiscal adjustments as if they were neutral or “technical” measures to enable the economy to run smoothly. This is a new consensus! The results are generally negative. The years of adjustment in Brazil represented times of growth slowdown, regressive social reforms (labor and social security) and loss of social rights.
The expectation generated by Lula’s 2022 campaign was that after the economic disasters of Dilma Rousseff II, Michel Temer and Jair Bolsonaro, we would finally see the end of the mantra of fiscal adjustment – or at least its draconian version of the “spending cap” – in favor of a dynamic of increased public investment and a developmentalist guideline in the government. All this, despite Lula having been elected without a clear program, other than loose promises, such as “beer and picanha for everyone”, “repeal of the labor reform”, “end of the PPI”, “renationalization of Eletrobrás” etc. After the inauguration, the conversation changed course.
From then on, we realized that the only program available was to approve a new spending cap, as defined by Minister Fernando Haddad in an interview with Monica Bergamo (Folha de S. Paul, 14.10.2024/70/0,6). Called the New Fiscal Framework, the measure proved to be a ceiling with more baroque characteristics, the center of which is to block expenses at 2,5% of net current revenue and enable GDP expansion of between XNUMX% and XNUMX% per year.
The reason for defining these numbers – 70, 0,6, 2,5 – is not explained by any cabalistic order. But the intention is clear: to prevent the growth of state activity and make room for private businesses. In other words, not even the worn-out neoliberal slogan of only spending what is collected is valid anymore. Only 70% of what is collected is spent! And what's more: with the triggers sanctioned by President Lula on the last day of the year, there will be sanctions if the rule is not followed.
What made economic dynamism possible during the years of Lula III's government, besides the Transition Amendment Proposal (about R$160 billion more in the budget) and the court-ordered payments (another R$90 billion)? Due to pressure from President Lula, constitutional spending (Health and Education) was not cut and rights such as the BPC, the minimum wage law (and its social security links) and the salary bonus were fully in force throughout the past year. In other words, there was growth because the framework did not come into force in its entirety.
Public spending has expanded. The IPEA Economic Outlook Letter from December reports that “The central government’s primary expenditure in the period up to November was R$2.029,2 billion at prices of that month, with a real increase of 4,6% compared to the same period in 2023”. Economic activity – GDP, income and employment – increased. Faria Lima literally went crazy, triggering a herd effect on the exchange rate in December. And what did the government do? It retreated even further.
Fernando Haddad went on TV to present a package of cuts, after more than a month of intense meetings with the president. The presentation was pure improvised marketing, in which a fictitious addition was presented about exemption from IRPF up to earnings of R$5 per month and taxation of higher incomes, certainly trying to placate a social base confused by so many comings and goings. Immediately afterwards, Lula recorded a live addressed to the “market”, in which he makes vows of love for the independence of the BC, before the new president Gabrial Galípolo, in a hype version of the Letter to Brazilians, from 2002.
In a hurry, the Planalto Palace sent a package of cuts to Congress, voted on in summary procedure – a rush that is not observed when the issues are of interest to the lower classes – which soon exposed the intentions of the Ministry of Finance. The cuts were directed at the rights of the poor and destitute. It went down so badly and opened up such a flank to the extreme right that President Lula had to back down and veto deeper cuts to the BPC. The minimum wage will grow less than under the previous rule. We went from the formula INPC + GDP variation to INPC + 2,5% (even if the GDP is higher, as is the case in 2024).
Neoliberals inside and outside government use the debt/GDP ratio as a metric for good fiscal management. This is a fifth-rate neoliberal fiction. What's wrong with this indicator reaching 80%, as we will soon see here? Central countries generally have debts around or above 100% of GDP, such as Japan (214,27%), the United States (110,15%), Spain (102,25%), Italy (140,57%) and France (92,15%), among others. On the other hand, poor countries have debts below 40%, such as Azerbaijan (20,68%), Bangladesh (39,9%), Bulgaria (31,5%), Botswana (20,35%), Estonia (18,83%) and Haiti (25%).
The data is available on the IMF website. Although these proportions are a market-based mythology, there is a virtuous possibility of reducing the debt/GDP ratio by increasing the denominator, with growth in production and employment.
What matters is the cost of debt, or the basic interest rate that Central Banks have to set so that their bonds become attractive to financial agents and to regulate the liquidity of the economy. Rates in the US and the Eurozone are generally not high when compared to those in the periphery. Low debt levels, on the other hand, may indicate a lack of interest from investors and the absence of a robust capital market. Despite this, this is the indicator that guides the Treasury's actions.
Finally, we must ask why on earth we need to continue with an endless adjustment if there is not even a shadow of a fiscal crisis on the horizon. We are not in danger of default or any kind of suspension of public debt payments.
Perhaps the greatest ideological victory of neoliberalism in the management of the State was to criminalize public spending and win over significant sectors of the left in this crusade. Cuts, contingency, blockade and other synonyms became synonymous with virtue!
We have an economic team that is not guided by development and for which the good results of GDP expansion, employment and income in 2024 are problems that can overheat the economy and cause – based on the questionable theory of potential GDP – inflation. This is also the view of financial capital and the mainstream media. It is empty talk.
The Framework represents a political, economic and, above all, ideological defeat for those who, after seven years and three governments of pure fiscal austerity, were hoping to finally have the chance to grow and promote real development. What we have contracted for 2025 could be yet another chicken flight, if the two new 1% hikes in the Selic rate promised in the minutes of the Central Bank are fulfilled, now under the hegemony of directors appointed by Lula's regime. The Framework imposes on us a logic of Peter Pan, the boy who didn't want to grow up. We don't need this fairy dust.
*Gilberto Maringoni is a journalist and professor of International Relations at the Federal University of ABC (UFABC).
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