By ROSE MARIA MARQUES*
The requirement to meet targets does not even spare social policies for those most in need.
The Brazilian economy has recorded excellent results in the indicators commonly used to assess economic performance. The expected GDP growth for 2024 is 3,5%; at the end of October, the unemployment rate was the second lowest since 2012 (6,4%); the average income of employed people has increased and so has productive investment, although this is far below what is desirable.
Still on the list of positive indicators, inflation is within the target and poverty has decreased significantly. Lula has always stated that his first objective was to combat poverty. According to the Brazilian Institute of Geography and Statistics, the population below the poverty line adopted by the World Bank (US$ 6,85 PPP per day or R$ 665 per month) fell from 31,6% (2022) to 27,4% (2023). This proportion was the lowest recorded since 2012. The population in extreme poverty (US$ 2,15 PPP per day or R$ 209 per month) fell from 5,9% to 4,4%. In addition to this percentage being the lowest since 2012, it is the first time that it has fallen below 5,0%.
In contrast to these indicators, the basic interest rate (the basic rate of the economy and the average interest rate practiced in committed operations with federal public securities) is at an all-time high (11,25%). In addition, the dollar surpassed the R$6,00 barrier for the first time without the monetary authorities taking any measures to contain the strong and rapid devaluation of the national currency.
Both the basic interest rate and the exchange rate are the result of guidance from the Central Bank (BC). Although it claims to be independent, the latter acts in accordance with the positions of the so-called “market”, a name assumed by the finance sector. For this segment – and consequently the Central Bank – everything is a reason to increase the interest rate: if there is inflationary pressure, regardless of whether it is from supply or demand, interest rates must be raised; if GDP grows at a rate higher than expected by the market, interest rates must be raised; and finally, interest rates must be raised because public debt is high and the “market” believes that its growth trajectory is maintained and even deepened.
The imperative of fiscal adjustment
The process by which neoliberal thinking came to determine fiscal and monetary policy in Brazil spans decades. It began with the opening of the stock market to foreign capital, continued with the sale of public assets (the privatizations of the 1990s), continued with the establishment of rules for the expansion of spending (only possible with the definition of new resources) and the prohibition of current expenditures being financed with public bonds, and continued with the implementation of pension reforms for both private and public sector workers.
These first measures were implemented particularly during the Fernando Henrique Cardoso (FHC) government, but neither Lula nor Dilma Rousseff reversed them, even partially, when they took office. On the contrary, in the first government, Lula was successful in approving changes to retirement, precisely in the aspects that FHC had not been successful in.
The second major moment of neoliberalism's advance over the definition of fiscal policy occurred in December 2016, during the government of Michel Temer, who assumed the presidency of the Republic when impeachment Dilma Rousseff. From that moment on, and as enshrined in the Constitution, public spending was frozen for twenty years. Unlike other countries, public debt service was not included in this freeze, and social spending was.
This mechanism became known as the “Spending Cap”. Its consequences were to disorganize the state apparatus, and public education and health were among the sectors most affected. In the area of education, salaries were frozen, entrance exams were not held, grants were cut and maintenance was left to fend for itself, affecting cleaning, water and electricity. In the health sector, activities of all types were compromised, hindering the performance of its actions and services.
Fiscal adjustment at the beginning of Lula's third government
In 2023, Lula approved a new fiscal regime, the “New Fiscal Framework”. Strictly speaking, as can be seen in its parameters, there was flexibility in relation to the Spending Cap, but the primacy of its control was maintained and deepened.
Parameters
I. primary outcome
1. definition of the target for 2023 and the following three years (-0,5%; 0,0%; 0,5% and 1,0%, respectively).
2. adoption of tolerance intervals in the targets, so that the primary result can be 0,25 percentage points of GDP above or below the defined target.
II. expenditure evolution
1. Growth in real spending limited to 70% of the real variation in primary resources accumulated in 12 months.
2. Real growth in primary expenditure limited to the range of 0,6% to 2,5% per year, that is, it cannot grow above 2,5% and not less than 0,6%.
3. The Constitutional Fund of the Federal District and the Fund for the Maintenance and Development of Basic Education are excluded from these rules.
III. sanction in case of non-compliance with the rules
1. Real growth in primary spending is expected to fall by 50% in the following year.
IV. Public Investment
2. Establishment of a budget floor, not necessarily enforceable.
3. If the primary result exceeds the target, part of the surplus resources may be used for investments.
In an attempt to achieve the zero deficit forecast for 2024, the government has strictly controlled expenditures, postponing as much as possible even those of a social nature and aimed at the poorest. At the end of November, it finally presented a set of measures with the aim of reducing expenditure by R$70 billion over the next two years, with the aim of guaranteeing the primary results targets set out in the Framework. Of this set of proposals, I would like to highlight three that directly affect the poorest population.
Change in the minimum wage appreciation policy
In 2023, Lula resumed this policy, as it had been interrupted by Bolsonaro. It consisted of increasing the minimum wage considering inflation and real GDP growth over the last two years. In his first terms, all studies showed that this policy was the main instrument for reducing inequality among employed people and for increasing the income of the poorest (given that it corresponds to the minimum wage for social benefits and that its value positively affects the base of the wage pyramid). The proposal is to maintain the rule of real growth by GDP, but the variation will be within the fiscal framework, of a maximum of 2,5%.
salary allowance
Today, it is paid annually to workers in the formal market who earn up to two minimum wages. The proposal is to reduce this access criterion to 1,5 minimum wages over time.
Continuous Cash Benefit
Paid to people aged 65 and over and to disabled people with income per capita family income equal to or less than 25% of the minimum wage. The proposal is to include, in the calculation of income per capita, the income of non-cohabiting spouses and partners and the income of cohabiting siblings, children and stepchildren (not just single ones).
With these and other proposals, adherence to the idea of the primacy of zero deficits and surpluses is now presented at another level, directly affecting policies aimed at the poorest, and which had been considered a hallmark of previous PT governments. In other words, adherence to the austerity thesis is revealed in its entirety.
The requirement to meet targets does not even spare social policies for those who need them most. A choice has been made. And it is impossible to continue saying that all of this is due to an unfavorable correlation of forces. There are things that cannot be proposed; there are limits that cannot be crossed.
*Rosa Maria Marques and pProfessor of the Department of Economics at PUC-SP. Former president of the Brazilian Society of Political Economy (SEP).
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