Public accounts: understand the scam

Image_Elyeser Szturm

By Ladislau Dowbor*

People tend to interpret accounts according to who they want to blame. Now, probably, the government will seek to blame the virus

Government money is our money. Knowing what happens to him is essential, and it's not complicated. I say this because so many people turn their backs when the first whiff of numbers appears. There's nothing complicated here. And the groups that control the money prefer that we keep arguing about the big social priorities, education, health or other policies in general terms, but not about the money that is essential to guarantee them. Here it is about money, yes, it is what allows you to have health, education and similar services. The volumes are large, but the account is simple, even if it is presented using terms that non-experts have a hard time understanding. Here's the decoding.

Follow the money (follow the money, say the Americans) is very enlightening, it makes you understand politics, the big options, much more than listening to political speeches. The table below, in the first three columns, is a simple transcription of the table presented by the National Treasury. These are official, up-to-date data. The numbers help a lot to demystify the farce that justified the coup, and the paths that lie ahead. We extracted data from 2003 to 2019, in order to understand the evolution of public accounts, because the comparison over time is what makes things clear. And we added a column on the GDP variation, data from the IBGE and not from the Treasury, for monitoring purposes. I ask the reader not to skip the table because it has numbers: these numbers are our life.

We kept here the numbering and title of the Treasury table. To make it clear, the first column, IX Central Government Primary Result, is the result of the government's own shares, how much it raised, and how much it spent on the cost of the machine, investments in education, health, infrastructure, etc. In the second column, X Nominal Interest, are the interest transferred to those who invested money in public debt securities, represent the part of our taxes that, instead of financing education, security, etc., is transformed into income for the private sector, essentially banks, insurance companies, the called “investors”. The third column, XI Nominal Government Result it is simply the sum of the first two, and is called the nominal result, but it could be called the final result. It's the number that appears in the news, that's where the size of the public sector deficit is really measured.

Each column shows the values, in millions of reais, and next to them how much these values ​​represent as a percentage of GDP. The last column, GDP change, was added to have reference points in terms of growth, recession or stagnation of the economy in general. In step by step the accounts will become clear.

Source: Ministry of Finance – National Treasury – Table 2.1. – PRIMARY RESULT OF THE CENTRAL GOVERNMENT Brazil – Annual. Available here. To access the data, click on “Central Government Fiscal Result – New Structure” and below in table 2.1., the data refer to lines IX, X and XI.

** Source: Brazilian Institute of Geography and Statistics (IBGE). CNT. Available here.

To facilitate reading, we can take the year 2013, the last year of what the World Bank called “The Golden Decade of the Brazilian economy”, it is the year of the turn from the distributive period to the austerity period, and follow the numbers horizontally . The column IX Primary Result of the Central Government, presents the public accounts before interest payments on the debt, we see that there was a surplus of 75 billion, 1,4% of GDP. That is, between State revenues and public investments and administration functioning, there was no deficit. In column X, Nominal Interest, we see that 185 billion in interest was paid, essentially to banks and other financial interests, a drain of 3,5% of GDP. We see that this is where the deficit was generated. In column XI Nominal Result of the Central Government, we have the result: the positive 75 in column IX minus the negative 185.8 in column X leads us to a negative result of 110 billion, a deficit equivalent to 2,1% of GDP. It is a moderate deficit, in Europe a deficit of up to 3% of GDP is considered tolerable. This is the basic account that the government makes for each year.

The important thing for us here is that the deficit was not generated by investments in health, education, infrastructure and the like, that is, the government's real economy (column IX), but by the payment of interest on the debt, the transfer of a good part of the our taxes for financial and rentier groups in general. The last column, GDP variation, shows still significant growth in 2013, 3%. If you compare it with your family's bills, it would mean that you spent less on running your home than you received, but the money left over went to pay the interest on the debt, and then you went into the red. And the interest you couldn't pay adds to the debt.

More interesting, however, is to do the reading by comparing the years, vertically. See in the first column, the activities of the government's real economy, that from 2003 to 2013 there is no deficit year, not even in the year of the 2008 crisis. In 2014, with the coup already underway, – still under formal government of Dilma, but with policies in the inversion phase – a very limited deficit of -20 billion appears. But from 2015 onwards, with the bankers in control, the deficit in this first column explodes to 116 billion in 2015, and 159 billion in 2016, and remains in the red even in 2019. Which is strange because they were “saving ”, and came to fix the deficit. The contradiction is obvious. In reality, as the economy contracted, less money entered the state coffers. Screw families and productive companies also screw the State.

But the really strong deficit is found in the Nominal Interest column, which are government resources transferred to financial groups. Every year there is a deficit, from 2003 to 2019. Let us remember that this transfer on the basis of the public debt dates back to 1996, when the Selic rate was created, paying an average of over 20% per year in Fernando Henrique Cardoso's time, when in the rest of the In the world, interest on public debt rarely exceeds 1% per annum. It was a gift for the financial system, appropriation of part of our taxes, accompanied by another gift which was to exempt the profits thus generated from the payment of taxes (law of 1995, exemption of taxes on profits and distributed dividends). Reading the column shows that the Lula and Dilma governments have always paid this toll to the rentiers, but also that this leakage of public resources to the financial sector increases radically from 2015 onwards. SUS, infrastructure and other public investments.

To have orders of magnitude, it is good to remember that Bolsa Família represents a transfer of around 30 billion, while in 2019, as shown in the table, 310 billion were transferred to rentiers, 10 times more. Lately, the Selic rate has been reduced, but as the stock of public debt has increased significantly, transfers remain very high. What broke the accounts was clearly the transfer of money from our taxes to financial intermediaries, who, incidentally, already earn loads of money with direct loan sharking on families and companies. We had the spending cap law, which limited households' access to public goods, but no 'interest cap law'.

The result that appears in the third column, adding the first two, is equally eloquent. The deficit radically changes levels when moving from the redistributive phase of the economy, between 2003 and 2013, to the concentrating phase (“austerity”) from 2014 onwards. In 2019, with so much propaganda about reducing the deficit, we had a shortfall of practically 400 billion, not to mention the 513 billion in 2015. private appropriation of public resources. Remembering that those who make financial investments with the Selic rate are essentially the upper middle class, and in particular the great fortunes and financial intermediaries. As they are gains without a productive counterpart, they technically constitute rent, unlike the profits, for example, of a shoe factory.

We added the last column, which is from another source, from the IBGE, with GDP variation data, because it is very useful to compare the performance of public accounts with economic growth. The average growth rate from 2003 to 2013, despite the 2008 crisis, was 3,8%, very high. And the result was achieved despite massive transfers to banks. The average for the years 2014 to 2019 was -0,4%, practically negative half a percent, in which neither public policies (reduced by the spending cap law and other recessive measures) nor the balance of accounts were ensured. We are entering the seventh year of paralysis, with a lot of demagoguery, absurd accounts, and a generalized swamping of the economy.

The explanation is not complex: when, from 2003 onwards, the minimum wage was recovered and a set of social policies was developed, the purchasing capacity of families greatly improved. With stimulated demand, what was called “mass demand” at the time, companies had someone to sell to, expanding production and consequently reducing unemployment, which fell from 12% in 2002 to around 5% in the final phase of the crisis. it was redistributive. Both higher consumption and dynamized production and employment generated more resources for the State, which was consequently able to finance both social policies and infrastructure, without generating a deficit. The money in the base has multiplier effects, and this explains the much more balanced accounts in the distributive phase.

It is important to note that the economic expansion policies of the redistributive phase were strongly limited by the interest rates of both the Selic rate and private credit. The Lula government inherited the liquidation of Article 192 of the Constitution, which stipulated a real interest ceiling of 12% per year: loan sharking was legally released. (PEC from 1999 transformed into EC in 2003). It was dragging this financial weight on its feet that one of the most significant economic and social advances that Brazil has ever known was achieved.

The logic of the financial system as it works today is not to serve the economy, but to enrich its shareholders and financial investors. The drain we've seen here on our tax dollars has not been limited to the public sector. A simple reference is household indebtedness. In 2003, household debt represented less than 20% of their income, in 2012 it represented more than 40%. We currently have 64 million "negative" adults, bankrupt on credit terms.

With growing debts, and paying loan sharks interest, families began to consume less, weakening in turn the companies' production. Productive companies do not need ideological discourse or “trust”, they need families with purchasing capacity to have someone to sell to, and cheap credit to be able to finance production and investments. In Brazil, productive companies have neither one nor the other, and use less than 70% of their productive capacity. The blocking of household consumption reduced the flow of taxes on consumption, and the fall in business production reduced the flow of taxes on productive and commercial processes: State revenues decreased, expanding the deficit that had already been growing with the appropriation of public resources through interest on the public debt.

In summary, comparing the distributive phases, from 2003 to 2013, and the austerity phase, from 2014 to 2019, and calculating the averages of each phase, we have the following: In the first column (IX), in terms of government policies ( administration, health, education, etc.) in the distributive phase we had more policies implemented, and there was still an average of 64 billion reais a year left over. In the austerity phase, from 2014 to 2019, we had an average deficit of -103 billion a year, which is why social policies were reduced.

In terms of the transfer of public money to banks and large financial investors (X), in the distributive phase an average of 130 billion reais were transferred per year, while in the austerity phase an average of 321 billion reais was transferred. That is, during the two phases the governments paid tolls for the financial system, but in the austerity phase the transfers were multiplied by 2,5.

In terms of the final result of accounts (XI), adding government activities and interest payments, we have, in the distributive phase, an average deficit of 67 billion, essentially due to interest for the financial system, and in the austerity phase the average annual deficit rises to 424 billion, that is, the deficit was multiplied by 6. Let us remember that the deficit was the great narrative for the coup: the good housewife only spends what she has.

And the annual GDP growth average is, during the distributive phase from 2003 to 2013, 3,8%, a very strong dynamic, which includes the impact of the 2008 world crisis, and with a strong progression of social and infrastructures. In the austerity phase, from 2014 to 2019, we have a negative GDP growth of -0,4%, including the two recessive years in 2015 and 2016, and a stagnation of around 1,1% in the following years.

As the population grows at about 0,8% per year, 1,1% of GDP growth in the last three years, in terms of result for the population, the so-called GDP per capita, we have 0,3%, that is, stagnation . Just remembering, the 216 billionaires in the country, between 2018 and 2019, in 12 months, increased their fortunes by 23%, that is, 230 billion, 7 times the Bolsa Família, in a stopped economy. Between 2012 and 2019, billionaire fortunes increased by an average of 11% per year. A farce was set up, including a widely publicized table of how everything was going wrong and it started to work well in the austerity phase.

People tend to interpret accounts according to who they want to blame. Now, likely, the government will seek to blame the virus. But the essential thing for us, looking back over the almost two decades, is that with the inversion of priorities, from the distributive policy to the austerity policy, and this even involves the final phase of the Dilma government, things went awry for the economy, for the population, and for the functioning of democracy, while becoming radically favorable to those who live off the financial system, which in Brazil plays a speculative drain.

The mass of money transferred to the world of rentiers has paralyzed the economy. We are not interested in who to blame – that is part of the narratives – but what works. Clearly, and particularly with this pandemic, we have to go back to redistributive processes, because they work, and because we are one of the most unequal countries on the planet. The economy that works is one that is geared toward the priorities and well-being of families. We have to come back to common sense.

*Ladislau Dowbor is professor of economics at PUC-SP. Author, among other books, of The era of unproductive capital (Outras Palavras & Literária Autonomia).

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