Strangle to the end

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By BRUNO FABRICIO ALCEBINO DA SILVA*

Emphasis on fiscal austerity may restrict investment

The Minister of Finance, Fernando Haddad, announced last Friday (22\12\2023), in Brasília, his persistence in the search for zero deficit in 2024. Although he admitted the dehydration of some measures sent to the National Congress, Fernando Haddad reinforced the importance of balancing public accounts not only through increased revenue, but also economic growth, if the Central Bank continues to cut interest rates.

The maintenance of a zero primary deficit for next year, as established in the Budget Guidelines Law (LDO) of 2024, raises questions about the impacts of this control in social areas, potentially violating the Lula government's guidelines for the next three years. The emphasis on fiscal austerity can restrict investments, especially in sectors fundamental to social development.

Fernando Haddad highlights the importance of the Ministry of Finance pursuing the goal of fiscal balance, stating that it will be done in light of events. However, it is crucial to question the logic behind the insistence on zero deficit as a condition sine qua non for the development. The fallacy that it is necessary to grow first to distribute is supported by Fernando Haddad when he continues to seek zero deficit. This concept is summarized in the expression “making the cake grow and then dividing it”, attributed to the Minister of Finance, Antonio Delfim Neto, one of the formulators of the so-called “economic miracle”, which occurred between 1967 and 1973.

The minister does not rule out the possibility of sending new measures to the National Congress or appealing to the Federal Supreme Court to achieve the objective of eliminating the deficit in public accounts. This stance reveals the government's willingness to implement austerity measures, even if this means seeking legal solutions to achieve fiscal goals.

To reach zero primary deficit in 2024, the government will need to obtain R$168 billion in extra revenue. Fernando Haddad highlights the approval of taxation measures for richer sectors as part of this plan. However, the emphasis on fiscal austerity measures may generate additional challenges, negatively affecting the country's economic and social dynamics.

The government, through the purposefully tight budget proposal, is reaping the fruit it planted in Congress. This strategy is often part of the political game, where the “centrão” seeks to guarantee advantages in exchange for its approval. The significant counterpart demanded by the centrão, with more resources for the electoral fund (R$4,96 billion) and a record number of parliamentary amendments (R$53 billion) as a condition for approving the budget, exposes the intricate dynamics and obstacles typical of the Brazilian political scenario .

This approach, however, is not without consequences. The inelasticity of the spending projection implies that certain areas, such as the Growth Acceleration Program (PAC) and others, will be penalized. The budget restrictions resulting from this negotiation could compromise the development of crucial sectors for the country.

Surprisingly, for Fernando Haddad, who does not seem to prioritize economic development, the situation seems acceptable. Maintaining a focus on zero deficit appears to be the top priority, even if it means sacrificing areas vital to society's growth and well-being.

The minister thanked the National Congress for the approvals, highlighting the strategy of gradually sending projects and provisional measures to guarantee sufficient time for debate. This approach, compared by the minister to a “medicine card”, raises questions about the transparency and urgency in implementing policies necessary for the country’s development.

Zero deficit, in this context, emerges as a kind of untouchable mantra, regardless of the repercussions and demands for investments in essential sectors. This stance raises questions about the government's strategic vision in relation to the State's role in promoting development.

By prioritizing fiscal balance so rigidly, the government risks compromising the potential for economic growth in the long term. The incessant search for zero deficit can, paradoxically, result in a scenario where the economy does not have the necessary stimuli to prosper.

In this context, it is imperative that budgetary decisions are more considered, taking into account not only fiscal stability, but also the pressing needs for investment in infrastructure, education, health and other fundamental pillars for the country's progress.

The government's strategy of seeking zero deficit could have serious implications for Brazil's development, especially when political negotiation results in cuts in essential areas. Fernando Haddad highlights the government's achievements, such as the resumption of the casting vote in the Administrative Council of Tax Appeals (Carf) and the taxation of exclusive and offshore. However, the conservative stance in relation to official estimates can generate uncertainty regarding the viability of fiscal targets, especially when it comes to revenues from specific sectors.

The prospect of continued Selic rate cuts is a strategy to stimulate private investment and combat inflation. Fernando Haddad argues that fiscal and monetary policy are not separate, contradicting the prevailing belief in Brazil.

Amid these considerations, it is crucial to question whether the relentless pursuit of zero deficit is the most appropriate strategy to promote sustainable development and social equity. The fallacy that it is necessary to grow first to distribute deserves deeper reflection given the country's economic and social complexities.

Minister Fernando Haddad faces the challenge of balancing fiscal austerity with the promotion of social well-being, a task that will require constant dialogue with the Judiciary, the Legislature and society.

*Bruno Fabricio Alcebino da Silva He is majoring in International Relations and Economic Sciences at the Federal University of ABC (UFABC).


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