Brazil's fiscal policy

Image_Oto Vale


The technocratic dream is to organize society through impersonal rules that channel the energy of individuals into social and economic cooperation. However, no rule is power neutral.

Vinicius de Moraes would be surprised. The debate over fiscal policy in Brazil is increasingly sounding like its folkloric song “A Casa”. Until 2016, our budget did not have a “ceiling” on expenses, it had nothing.

Until the implementation of the real plan, conflicts over income took place in a diffuse manner throughout society. Entrepreneurs raised prices, pressured by corrections in public tariffs and pressure from unions for wage increases. The latter struggled to update their incomes since the last readjustment due to accumulated inflation, resulting from rising prices for entrepreneurs. The vicious circle repeated itself, driven by its own “inertial” forces that even “accelerated”. Brazilian inflation had refuted Newtonian physics.

The theory of inertial inflation was a novelty in Brazil that seemed to explain an important aspect of our inflationary experience. The failure of the Cruzado Plan and subsequent stabilization plans gave centrality to fiscal balance. This came to be understood as a fundamental condition for keeping expectations anchored and preventing the resumption of inflation after the stabilization attempt.

One of the objectives of the Real Plan was to centralize society's distributive conflicts in the public budget. The effort began in the first stage of the Real Plan, with the creation of the Immediate Action Plan (PAI) and the Social Emergency Fund (FSE). The latter was the seed of the budget disengagement that Minister Paulo Guedes is now trying to spread, with the virulence of measles, to the rest of the budget accounts. The Fiscal Responsibility Law of 2000 was the consecration of this effort to infuse vigilance and transparency into the public budget process.

The objective was to make these conflicts more “transparent” and, via the legislative process, to discipline them according to the balance of power in the Executive and Legislative branches. By making the budget less “fictional”, we would reveal to society how “our tax money” is spent. By means of mobilizing indignation, society would remove privileges and excessive expenses from less important areas. All through the democratic game, in the eyes of the whole society.

This is the technocratic dream par excellence: organizing society through impersonal rules that channel the energy of individuals towards social and economic cooperation. The rules would measure the temperature of social conflicts and, in an orderly and peaceful manner, would direct the process of gradual reform of the State and its relations with civil society and the market. Here's a world in order!

However, no rule is power neutral. After all, it is the constitution of the latter that produces it. And power always wants more power. Power Laws protect hierarchies from dissolution. If wealth breeds more wealth, its opposite also applies (with rare exceptions): poverty breeds more poverty. And without a shift in power structures, the social temperature cannot be controlled. The extremes move away.

Civilization tries to keep the box of primitive instincts that lead to violent conflict resolution sealed. Economic and social polarization raises the temperature and pressure. Molecules collide more often. Disorganization advances. Here is society in entropy.

Although limited as a long-term development project, the “capitalization of the poor classes” during PT governments demanded greater social and budgetary space for classes emerging from poverty. Society and the public budget exposed the vein of the real stiffening of their structures. The pressure rose. Symptom of this social upheaval that made the hierarchy of Brazilian society explicit, the June 2013 protests kicked off the social unrest that would culminate in the 2018 election.

In this way, the yearning of part of the electorate for order gained clearer contours. Dilma's impeachment was the first step. The parliamentary coup with fiscalist pretext quickly showed its colors. In less than six months, an ecstatic National Congress approved, in record time, Constitutional Amendment 95 or the spending cap rule.

The ceiling metaphor is distressingly accurate. This is yet another stage in the realization of the technocratic dream of order: to prevent distributive conflicts from escaping the budgetary “little box” and contaminating society with the inflationary virus. If the ceiling collapses, the narrative goes, society explodes into hyperinflation.

According to this narrative, so that the catastrophe does not occur, it is imperative to “explain” the conflicts over budget slices. This will generate more awareness on the part of society, which will organize itself to defend the expenses that really matter.

The idea is not wrong in itself. The problem is to know if the structures of power allow its viability as idealized. As Guedes has been showing, there are several ways to “escape” the impositions of the rule, including using Fundeb. In the conflict between the technocracy and the political elites, the public sector is usually the loser, a system adjustment variable.

Once the spending ceiling has been “projected”, we need to build its support beams… The first step in this agenda: ending the tax exemptions for large companies that cost the public coffers around R$ 300 billion a year.

Calm down, it's just a joke... The main thing is the reduction of the puffy and inefficient State. That's where that support from the press comes in line with what I called project Casa Grande with Casino in the immense Amazonian Farm. Every “myth” needs a nemesis; the “messiah” lacks a “Pharisee”.

Pension reform was the first chapter of this soap opera. An arduous struggle of at least three years against the generous pensions of civil servants (thus, in the aggregate). The second pillar of the roof is administrative reform. As in the first, the enemy is the “public servant”, this middle nobility who lives with nababesque privileges. But multidimensional inequalities complicate binary plots that foment the necessary social outrage.

In this second chapter of the novelization of social inequalities, Brazilian society homogeneously suffers the pain of the pandemic while public servants work remotely from their palaces in the Bahamas. The inequalities that separate the valiant app deliverers Matheus and Paulo Galo from the “natural” protections that under-taxed wealth offers Bia Dória and company are also manifested in public service.

Source: Piauí Magazine. Who earns more in public service.


Like that of social security, administrative reform at any cost will maintain the privileges that motivate it in terms of discourse. After all, power structures will validate such reform at the price of being immune to it. In the good old give-and-take at the top of the social pyramid, the cost of reforms will be distributed on the floor below, in the form of precarious public services, particularly in health, education and science and technology.

For all these reasons, when viewed through the lens of reality, the technocratic dream is something like rounding up water vapor molecules and trapping them in the glass to quench your thirst. Making the struggle between them explicit doesn't change anything. It is the reduction of the “temperature” of the “social” environment that makes molecules visible and stable. Covering the glass will cause an explosion.

In view of the socioeconomic effects of the pandemic, maintaining the spending ceiling and administrative reform has everything to increase social pressure in its multiple cuts. It is equally possible that the social cost of this balance is enormous. History perhaps registers, in the not so distant future, that Brazilian democracy became a “very funny” house, in which “nobody could enter it, no, because the house had no floor”. But at least the budget will be balanced.

*Andre Roncaglia is professor of economics at the Federal University of São Paulo (UNIFESP).

Originally published on GGN newspaper



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