By JOÃO DOS REIS SILVA JUNIOR*
The Bolsonaro government has left a hole in the public accounts, making a fiscal adjustment inevitable by the current government, which needs a vote of confidence to face fascism, which is very strong.
By the end of 2022, market analysts commodities and the Faria Lima rentiers expressed substantial concerns regarding the fiscal deficit projected for the following years. Experts indicated that the Bolsonaro government left a “fiscal deficit” estimated at R$400 billion by 2023. This deficit was attributed to unfunded campaign promises and ongoing expenses that were not properly included in the budget. The former president campaigned for reelection for four years and left the budget in the hands of a venal “centrão” led by Arthur Lira. Fiscal adjustment was imperative for the government that would succeed him: the Lula III government.
The current government is proposing what is feasible. The fiscal adjustment proposal is acceptable given the legacy of the former president and Brazil’s semi-peripheral position: 1) balancing the federal government’s public deficit next year; 2) forecasting a GDP surplus of 0,5% in 2025 and 1% in 2026. It is also strategic and cautious, given that the next presidential elections will take place in 2026 and neo-fascism remains strong in the country. The government intends to maintain priority spending on health, education and security; increase public investment, boost economic growth and control public debt and inflation. The package would be more rigorous if pressure from institutional market agents, accustomed to the perks of Paulo Guedes and the Bolsonaro government itself, were taken into account. Lula blocked many of the cuts initially planned, but was unable to prevent the loss of social rights for his base. As a result, the framework has become less arid, but at the same time, it has been criticized within the Workers’ Party itself. However, the minimum wage (MW), previously adjusted by inflation plus GDP variation, disappears from the current proposal. With it, an entire chain of wages and services whose adjustments are linked to the MW. This should be the target of criticism. The affected citizens are the poorest and constitute Lula's support base.
Time to do politics
There is a vast political negotiation underway and many changes may occur, given that the Brazilian legislature is, at the very least, corrupt. When the plan is detailed, it seems that the devil is worse than one imagines, at least until the end of 2025. Brazil's Fiscal Framework, implemented in 2023, brought several budgetary changes to the public sector. The main changes can be listed as follows: 1) Mandatory Expenses; 2) Public Investments; 3) Tax Revenues; 4) Transparency and Control; 5) Fiscal Balance. The main objective of the framework is to balance public accounts, eliminating the fiscal deficit by 2024 and generating a surplus as of 2025. The measures are valuable for the country to become an attractive destination for financial capital, transforming Brazil into an excellent stock market. To this end, there are asymmetric cuts.
Workers will be the ones most affected by their minimum wages and social benefits (bonus and BPC); there was a change in the BPC rules. The minimum wage, linked to GDP growth, a policy implemented by the Lula and Dilma governments, worked as an excellent income distribution process. The current option seems to be different: the package brought an exemption or reduction in income tax for workers who earn up to five minimum wages, promoting a process of redistribution. And the increase in taxation for those who earn more than R$50.000,00. The problem with the change is that the change in rules, in the medium term, will lead to the loss of social benefits. Social benefits should be the target of criticism. A government that calls itself center-left cannot cut social benefits that have historically been won by the president's own party.
The rules
These changes aim to strengthen the sustainability of public finances and foster “more equitable and inclusive economic growth.” Using the expression “inclusive economic growth” is ironic. Regarding mandatory expenditures, it could be said that these, including salaries, pensions and social security benefits, were adjusted to ensure that they do not exceed the limits imposed by the framework. This includes the review of the minimum wage and the optimization of social programs. The reality is inhumane, as it appears, to see that a tiny portion of the population is aware that their income is limited to guarantee the balance of government accounts and not to meet the essential needs of human beings. The rationality that justifies such a disaster will be at the forefront.
Those who accumulate do not pay
Regarding public investments, the document established a floor, ensuring that at least R$75 billion would be allocated to infrastructure and other essential projects, even in periods of lower economic growth. This amount, when compared to the total tax exemptions granted to domestic or foreign companies operating in the country, which amount to around R$300 billion annually, raises questions. What is the justification for such submission to corporate interests to the detriment of projects that benefit all citizens and not just those who can afford the products of exempt companies? The focus was on expanding tax justice in order to increase tax collection, reduce tax evasion and improve the efficiency of the tax system.
The Brazilian government intends to raise R$70 billion in a two-year period through measures to strengthen the fiscal framework. These initiatives include adjustments to social programs, new guidelines for the minimum wage, improvements to the tax system, and revisions to mandatory expenses. In addition, the government aims to eliminate the primary deficit by 2024 and achieve a surplus of 0,5% of GDP in 2025 and 1% of GDP in 2026. Why such deep cuts when in the United States the domestic debt is not even mentioned? This disparity could be explained by a bitter irony: “we are the ones paying”. The adjustment of the minimum wage in Brazil in 2024 has not yet been officially defined. However, the government has already indicated that the next adjustment will be based on the consumer price index (IPCA), which measures inflation. There will be no increase; the minimum wage will be adjusted according to the CPI, that is, by inflation; This implies that purchasing power will remain stagnant. [I think this should be said at the end of the second paragraph, as I indicated]
Do companies pay?
In contrast, media corporations in Brazil have benefited from significant tax exemptions, especially in payments to the National Institute of Social Security (INSS). From January to August 2024, such companies accumulated R$484,8 million in tax exemptions. The biggest beneficiary was Grupo Globo, which received an exemption of R$173,3 million. Other large corporations, such as TV Record and Grupo UOL-Folha, also benefited from exemptions of R$39,7 million and R$39,3 million, respectively. However, this does not end the issue. The amount released by amendments in 2024, approved by the National Congress, reached a record figure of R$53 billion in the Federal Budget. These resources are allocated by parliamentarians to their electoral bases and divided into three main categories: Individual Amendments (R$25 billion), Amendments from State Benches (R$11,3 billion) and Committee Amendments (R$11 billion). [And without the mandatory transparency]
Armed forces
According to representatives of the armed forces, Brazil is going through a period of cuts in the military sector. In 2024, the government announced significant reductions in the budget of the Armed Forces, including the reduction of personnel expenses, delays in salary payments and the suspension of equipment modernization programs. These measures are part of a broader effort to control the public deficit and balance the national budget. Such cuts have raised concerns among military personnel and experts, who argue that they could compromise the country's defense capacity and the morale of the "troops". Specifically, there have already been delays in the payment of salaries and benefits to military personnel. In addition, reductions are expected in the amounts allocated to active and retired military personnel. Hiring and promotions are being postponed or frozen. Several military equipment modernization programs, such as the acquisition of new armored vehicles and aircraft, have been suspended or postponed. Construction and modernization projects for military facilities are being suspended or reduced. The frequency and scale of military exercises have been reduced, affecting troop training.
Brazil’s participation in international peacekeeping missions and joint operations with other nations could be hampered by the lack of resources. According to military strategists, there will be consequences arising from the cuts. They could compromise operational readiness and the Armed Forces’ ability to respond to internal and external threats. Soldier morale could be negatively impacted by salary delays and uncertainty about future promotions and benefits. The reduction in participation in international missions could affect Brazil’s position in international organizations and its relations with other countries. Furthermore, according to strategists, these cuts are part of a larger effort to balance the federal budget and reduce the public deficit. However, these are delicate issues involving national security and internal stability. The government promises to veto some of the amendments and recompose them after balancing the public accounts. This remains to be seen, given the composition of parliament, dominated by the most physiological group: “the centrão”. We could say that the current government, President Lula’s 3rd term, is subject to a budgetary parliamentarism regime. Certainly a great justification for the cuts to the military being symbolic and not real.
The conditions for managing cuts
It seems feasible to implement the cuts, given the current state of management of the process. According to the document [which document?], there are budget margins and bands that allow for efficient management until 2026, although changes may be observed as early as 2025. Despite the overall budget cuts, funding for science, technology, and public universities in Brazil in 2024 was not significantly affected. In fact, the government announced an investment package of R$3,1 billion to strengthen the innovation and research infrastructure, with a focus on the North, Northeast, and Central-West regions. In addition, the National Fund for Scientific and Technological Development (FNDCT) approved an investment plan of R$12,7 billion for 2024, distributed across ten structuring and mobilizing programs. These investments aim to support strategic projects, such as the Brazilian Artificial Intelligence Plan (PBIA), and promote technological autonomy in the defense area, among others. The government is also encouraging private sector participation to increase resources available for research and development (R&D).
The fearful media
As we have seen previously, media corporations have been enjoying tax exemptions, especially with regard to payroll tax relief. Fearful of the prospect of losing their exemptions, they are attacking the government, hoping to extend the fiscal package. While aiming their weapons at a possible timing error, the media group maintains its exemption, presenting a complex picture. The government needs a vote of confidence to face fascism, which is very strong, as can be read in the column “For a new abolition of slavery” published on November 28, 2024, in this newspaper. This is not a direct criticism, but it is also not possible to endorse the framework that suppresses workers’ social rights.
*João dos Reis Silva Junior He is a professor at the Department of Education at the Federal University of São Carlos (UFSCar). Author, among other books, of Education, Class Society and University Reforms (Associated Authors) [https://amzn.to/4fLXTKP]
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