Fernando Haddad and fiscal austerity

Image: Kushnir


The insistence on maintaining the goal of zero deficit in the Budgetary Guidelines Law (LDO) reveals a limited vision of the economic and social challenges faced by the country

When closing the accounts for 2023, the Lula government was faced with a significant hole, exceeding R$230 billion, as released by the National Treasury Secretariat, which represents 2,1% of the Gross Domestic Product (GDP). This primary deficit, the result of the mismatch between spending and revenue, is not only one of the worst results since the start of the Covid-19 pandemic, but also stands out as the second largest in the historical series that began in 1997 (see graph 1) . This alarming figure sheds light on the fiscal policy adopted by the government and raises questions about the effectiveness of the measures taken to guarantee the country's economic stability.

Source: Reproduction/Transparent National Treasury

Graph 1 – Primary result between 1997 and 2023 (in billions)

One of the justifications for this deficit lies in unforeseen expenses, such as those related to court orders not paid by the Bolsonaro government, which totaled more than R$92 billion in 2023, and compensation to states for the loss of revenue from ICMS on fuels. This last amount, added to the unforeseen expenses with court orders, contributed significantly to the fiscal result for the year. However, even in the face of these impressive numbers, the incessant pursuit of fiscal austerity and the inflexible commitment to the goal of zero deficit have been points of criticism.

The Minister of Finance, Fernando Haddad, has been defending a stance of fiscal austerity, reflected in the search for a balanced primary result for 2024. However, when we compare this approach with the alarming numbers of last year's fiscal “break”, it becomes It is evident that the rigidity in maintaining the zero deficit target is, to say the least, questionable. In the midst of a challenging economic scenario, where unforeseen expenses contributed significantly to the deficit in public accounts, the insistence on an austerity approach seems to be disconnected from reality.

The insistence on maintaining the zero deficit target in the Budget Guidelines Law (LDO) reveals a limited vision of the economic and social challenges faced by the country. By focusing exclusively on reducing the “hole”, the potential of public spending as a crucial instrument for stimulating the economy and promoting social well-being is neglected.

This narrow approach disregards the role of public investments in leveraging economic growth, creating jobs and mitigating inequalities. In a context where aggregate demand is essential to boost economic activity, restricting itself to the fiscal target severely limits the government's ability to act proactively to face crises and promote development.

At the end of 2023, the federal government issued Provisional Measure (MP) 1.202, establishing the gradual reduction of the payroll in 17 productive sectors from April 1st of this year, defying the exemption previously approved by Congress. This measure becomes an important source of revenue for the government. Despite the fiscal deficit, the Secretary of the National Treasury, Rogério Ceron, in a speech, demonstrated optimism regarding the improvement of public accounts and the reversal of negative results. He emphasized the importance of dialogue with Congress, despite resistance from parliamentarians. The MP's projections will be incorporated into a bimonthly report in March, for possible contingency measures.

In view of this, it is necessary to recognize that the 2023 primary deficit cannot be seen as an isolated problem, but rather as part of a broader and more complex economic context. In addition to unforeseen expenses, the “hole” reflects a series of structural challenges that permeate the country's public finances. Among these challenges, the high costs associated with paying interest on public debt stand out, which consume a significant portion of the national budget and represent a persistent obstacle to fiscal balance.

The emphasis on fiscal austerity, although often presented as a solution to fiscal problems, can distract from the real structural issues affecting public finances. By prioritizing indiscriminate spending cuts and seeking to reduce the deficit at all costs, there is a risk of sacrificing essential investments in areas such as health, education and infrastructure, compromising long-term social and economic development.

Therefore, there is an urgent need for a change of stance in relation to fiscal policy. Instead of pursuing an unrealistic goal of zero deficit, the government should consider setting more realistic and sustainable goals, aligned with the country's needs and challenges. Otherwise, there is an imminent risk of perpetuating a cycle of adverse fiscal results. This requires a comprehensive review of the New Fiscal Framework, which currently imposes excessive restrictions on public spending, and a reassessment of spending and investment priorities, with a focus on promoting inclusive and sustainable growth.

In short, this moment requires a more flexible and pragmatic approach, which considers not only immediate needs, but also long-term development objectives, thus rescuing the role of the State in the economy.

*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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