Transition budget and social spending



The resources needed for the country's recovery and transformation are far from guaranteed and depend on more structural reforms.


The public budget crisis is one of the most emblematic portraits of the difficult transition between the Bolsonaro and Lula governments. The recent approval of the Emergency PEC, already duly dehydrated by Centrão, is a quick fix that allows nothing more than to recompose the most emergency expenses, in some essential areas, which were cut by Bolsonaro in his budget piece for 2023.

Better than nothing, of course. But the resources needed for the recovery and transformation of the country are still far from guaranteed and depend on more structural reforms, the first of which is the definitive overthrow of the Expenditure Ceiling (EC-95) and other limitations on social spending, something difficult in the reactionary framework of Congress and the institutions of the Republic (Andrade, Handfas, 2022).

Such expenditures are absolutely necessary. Both for the fairness of its distributive capacities and for overcoming economic stagnation, and – in the case of a backward and peripheral country – for its driving power of national development. But they are also fundamental for allowing improvements in the public accounts themselves, contrary to what the propaganda of the dominant ideology tries to convince us day after day.

The Bolsonaro government ends its term leaving a huge trail of destruction. In addition to the persistent attacks on democracy, the environment and human rights – particularly against indigenous peoples, quilombolas, the poor and the periphery – its greatest legacy may be the burning of strategic state-owned companies (Eletrobras, parts of Petrobras, Metrô de BH, among many others). ) and the dismantling of public services perpetrated with unprecedented cuts. For example, those in Health and Education – leaving hospitals, universities and schools unable to continue functioning –; at the Popular Pharmacy or at the INSS – threatening millions of having their medicine or even pensions denied.

Left server wages with inflationary losses of 35%. He attacked labor and social security rights with his anti-popular counter-reforms and the only reason he did not advance in greater destruction of Public Services was that, already weakened, he did not have the strength to approve the PEC-32 of his minister Guedes. It dismantled elementary food supply services, closing dozens of Conab regulatory public warehouses and dismantling Embrapa with deleterious consequences for family farming and the production and distribution of food to the population. It now leaves 125,2 million Brazilians (59% of the population) without access to adequate daily food.

And it also leaves an unfeasible Budget for 2023 with cuts, as never seen before, in all essential areas. This puts public services and a good part of the economic relations they give rise to on the verge of functional bankruptcy.

The problem of brutality in budget cuts, however, is not limited to the irresponsibility of a government composed of ogres and criminals. The fact is that there is pressure against public spending that comes from those who, despite their revulsion at Bolsonarism's lack of etiquette, have always been consensually enthusiastic about Guedes' economic policy: the mainstream media, the traditional right and the ruling classes. And it is such a consensus among those at the top that makes anti-people fiscalism so imposing, regardless of who wins the elections.

For decades, the Brazilian ruling classes have developed an aggressive and persistent campaign against social public services, state-owned companies and government spending aimed at social development. It is an offensive orchestrated from its lieutenants who control the media-ideological apparatuses and the political-legal-military institutions. Campaign that intensified a lot with the unfolding of the 2016 coup.

Since then, a profound fiscal adjustment – ​​which began in 2015 with the Levy Plan and became much more pronounced with Temer’s “Bridge to the future” – combined with the Lava Jato action, intensified a recession that, therefore, became in an unprecedented economic stagnation from which the country, eight years later, still hasn't gotten rid of. The approval of EC-95, the Spending Ceiling, led to Bolsonaro-Guedes aberrations, including the Secret Budget. Which is, after all, created by Teto himself, since it was the bargaining chip charged by the Centrão to accept and approve consecutive Constitutional Amendments that would allow the executive to disrespect (or at least circumvent) the Teto itself – without which, any government would become unfeasible .

It is worth remembering that since the late 1980s, a legal framework has been built in the country against social spending – including those inserted by popular struggles in the Federal Constitution (CF) of 1988. article 167 of the CF and article 2 of the LRF), which prohibits paying primary current expenses with the issuance of new debt; the Fiscal Responsibility Law (LRF), which – imposed by the IMF in 2000 – requires the Executive to present and comply with a Primary Surplus target (collection greater than expenses, without considering expenses with interest on the debt, precisely to guarantee its payment) , in addition to the Ceiling (freezing of social funds for 20 years), which is the last and most draconian among the fiscal policy locks. What's worse, these rules are all essentially pro-cyclical. That is, when the level of activity weakens due to a recession, revenues and, with it, the primary result fall.

What obliges the government to cut spending, either because it cannot borrow (Golden Rule), or because it has to comply with a Surplus (LRF), or because discretionary spending is annually reduced given the freezing of funds in the face of the vegetative growth of mandatory spending (Roof). The country is forced to abort any attempt to recover aggregate demand, income, collection and the primary result itself, leading the economy to repeated and prolonged vicious recessive cycles. And, obviously, any possibility of medium-long term economic development is eliminated.

The reasons for such a rage against public spending are economic, but above all political – as this article will seek to expose later. To this end, he will now review some aspects of the current budget impasse. Starting from a brief chronicle of the recent attempt to patch up the transition budget and the reactionary opposition to it, this contribution will seek to expose the illusory superficiality of the arguments used by such opposition. Finally, some theoretical and empirically corroborated elements will be presented that help to show, including numerical examples, viable alternatives to social spending to face the current impasse.


The transition budget

The Transition Team to the Lula government spent almost two months, right after the elections, trying to recover and fill the huge holes in the 2023 Budget, prepared by Guedes-Bolsonaro in agreement with the Centrão, still in September 2022. PT parliamentarians and allies presented in Congress an emergency alternative in the form of a PEC (“of the Transition”) authorizing the hole and/or expansion of the Expenditure Ceiling to minimally recompose the social budgets. Dehydrated in the Senate and especially in the Chamber by Centrão, who used and abused the opportunity to blackmail the elected government as much as possible, the PEC was finally approved in late December and sanctioned as Constitutional Amendment 162.

Briefly, the EC-162:

– Is valid only on the Annual Budget Law (LOA) 2023 – instead of focusing on the LOAs for the next 4 years, as stated in the original PT proposal;

– Raises the Spending Ceiling by R$145 billion. In other words, R$30 billion less than the PT's original proposal.

Of these BRL 145 billion, BRL 70 billion will be used to complement the BRL 105 billion already provided for in LOA 2023 (Bolsonaro's) to Auxílio Brasil, now returning to the name Bolsa Família - which will therefore have a total of BRL 175 billion to guarantee payment of R$ 600 per month to around 21 million families, plus R$ 150 per month to each child up to 6 years of age of single mothers (around 8,3 million children). The remaining approximately R$ 75 billion for expansion in the Ceiling can be used to recompose funds in other social areas. For example, R$16,6 billion to Popular Pharmacy and other programs in Health, R$6,8 billion to Social Security to ensure a real increase in the Minimum Wage and tens of billions in programs such as Didactic Book, Minha Casa Minha Vida, etc. . – some of these can only be recovered very partially.

– Exempts such BRL 145 billion from the limitations of the “Golden Rule”. Thus, exceptionally in 2023, the government will be able to finance this amount by issuing public bonds without having to request authorization from Congress.

– Exempts expenses (up to 145 billion) with BF and Gas Aid (and only these) from the limitations of the Surplus Target imposed by the LRF.

– Exempts almost BRL 23 billion (6,5% of extraordinary revenues for 2021) from the limits of the Expenditure Ceiling and Primary Surplus to public investments – which now (because they are outside the Ceiling) can even be allocated to current expenditures, including investments.

– It also exempts from the limits of the Expenditure Ceiling (but not from the Primary Surplus):

i. the use of resources (up to R$ 24,6 billion) of PIS-Pasep not withdrawn until 1988 (abandoned).

ii. expenses paid with own income or with donations (preventing them from being eventually contingency for exceeding the ceiling) in three cases of expenses: with socio-environmental projects, with federal Education, Scientific, Technological and Innovation institutions and with engineering works and services.

– Removes (from the original PT proposal) the possibility of considering resources from multilateral organizations outside the ceiling.

– Defines that of the BRL 19,4 billion allocated (in Bolsonaro’s LOA) to the Secret Budget – now considered unconstitutional by the STF –, about half will become RP2 (“reporter’s amendments to public policies”) to be used by the Executive of discretionary way. The other half becomes RP6 (“individual parliamentary amendments, with mandatory execution”). Thus, such individual amendments will increase from the current R$ 11,7 billion to approximately 21,5 billion.

– Determines that the president (Lula) submit to Congress by August/2023 a complementary bill (PLC) for a new fiscal regime that, once approved (only by a simple majority, as it is a PLC and not an EC) will take to the repeal of articles amended in the CF by EC-95 (Expenditure Ceiling).


just a relief

In practical terms, therefore, EC-162 will make it possible to exceed the current ceiling limit by BRL 145 billion, added to another BRL 50 billion from an arrangement of revenues – extraordinary, specific to municipalities and PIS-Pasep leftovers. It will also make some budget operation devices more flexible by the Executive. In addition, of course, to corroborating/implementing the STF's decision on the Secret Budget, reducing (only) a part (and with compensation) of Centrão's budgetary power.

Depending on how much of this R$50 billion will be effectively used, the social expenses foreseen in the PLOA 2023 could be increased by something between R$145 billion and R$195 billion; that is, between 1,5% and 2% of GDP more. As such PLOA 2023 forecast total expenditures of 17,6% of GDP, this means that they may now reach the level of 162% to 19,1% of GDP with EC-19,6.

This is a relief, of course, but it is not the salvation of the crop. Because it only allows to restore funds to the very low levels of 2022 – which, according to the latest Budget Execution report, represent 19% of GDP. In other words, with all the expansionist provisions of EC-162, spending in 2023 will remain similar as a proportion of GDP to that of 2022. Since the latter is a year that witnesses a collapse not only in the social areas, but also in of public investments, which reached their lowest historical level: less than 0,3% of GDP – remembering that the mere maintenance of public infrastructure (replacement of the depreciation of the capital stock) would require 0,5% to 1% of GDP in investments budgetary.


Alternatives and upcoming battles

The debate about the feasibility of other legislative strategies (instead of the PEC) that would be more or less (politically and pragmatically) opportune to advance further in the recomposition of social spending is beyond the scope of this text. It is known, however, that it is always difficult to say how feasible it would be for Lula's team, which has not even taken over the government (and is still operating under threat of a badly dispelled Bolsonarist coup), to increase such expenditures even more in the inhospitable framework of negotiations in this Congress. so reactionary and physiological.

What is certain is that this was just one battle in a much longer war. The next one – by August – should be the presentation of the new fiscal anchor law, which needs to eliminate the austericidal, pro-cyclical and counterproductive obstacles existing in the current fiscal framework (“ultraneoliberal”) in Brazil – Teto/LRF/Regra de Ouro. Far beyond the (recognised) political and negotiating skills of Lula and his allies in the institutional struggle, which is always very flawed and limited, the struggle of the people in the streets can be decisive in guaranteeing new advances.


The “spending” fallacy

Even though it expanded the Roof by far less than necessary, the EC-162 was – and continues to be – the object of enormous opposition. Not only from Bolsonarism, which tried to maneuver to delay the vote on the PEC, but also from last-minute “allies” (such as the toucan Tasso Jereissati) insisting on demanding the minimum expansion of the ceiling.

All of them, together with economists from the bank (“market”) and the mainstream media (which soon attacked the amendment with the absurdly unfair nickname “PEC of spending”), are constantly announcing a catastrophic explosion in public debt if the ceiling be exceeded. They had not, however, shown such anxiety, much less such vehement opposition to the multiple (four) Expenditure Ceiling overruns in the last 3 years (in the total amount of more than BRL 700 billion). Including those to guarantee the ultra corrupt schemes of the Secret Budget and the purchase of votes to the genocidal president's reelection attempt. Nor do they complain about the BRL 800 billion to be spent on debt interest payments in 2022 alone.

With the natural growth of the country's population – and with it the rise in mandatory spending such as Social Security given the vegetative increase in retirees – the Ceiling will crush all discretionary spending. This will collapse any possibility of social or even countercyclical fiscal policy in the country.


Public spending and debt

Incidentally, the argument used in favor of the ceiling or against the PEC's spending expansion measures is that public debt will grow exponentially with additional social spending. And this is economically – both empirically and theoretically – a fallacy. This, among other reasons, because social spending implies a high fiscal multiplier, as noted, even at the beginning of the Great Depression of the 1930s, by R. Kahn, who first elaborated on the subject. His study was soon incorporated by Keynes in General Theory and, later, by all conventional macroeconomic theory (Snowden, 2005, pp. 60-2). It is the chain effect of income generation triggered by a public or private expenditure.

It is common, therefore, to observe that in recessive periods, social spending – both those focused on income compensation programs (due to unemployment and falling wages) and those aimed at public services (construction of new schools, hospitals, etc.) – raise the indebtedness in the short term, but reduce it in the medium term by allowing a quick recovery of the GDP and, therefore, of tax collection. This can be seen in the graph below, which shows the Debt/GDP ratio, the main measure of indebtedness.

It is noted that the sharp fiscal retraction carried out during the FHC government and the beginning of the Lula government increased the indebtedness. The fiscal expansion (much less aggressive than the heralds of the “market” and the media would have you believe) driven by social programs between 2006 and 2010, created the conditions for the fall in the debt/GDP ratio in the following period. This drop, which continued until 2014, was also helped by the more favorable international scenario for GDP growth between 2004 and 2012. On the eve of the coup that overthrew President Dilma, the market and the coup plotters carried out ideological and political terrorism, falsely boasting that the debt and inflation would be “out of control” (it can now be seen that, on the contrary, both were at historically very low levels). And with that, they forced the government to capitulate and adopt a strong fiscal adjustment through the Levy Plan.

The adjustment – ​​typical of austericidal policies (self-defeating policies) – had the opposite effect of what it promised: from 2016, the indebtedness grew again, something that accelerated a lot with the approval of Temer’s Spending Ceiling at the end of that year. And, conversely, the emergency aid and the PECs that broke the ceiling during the Bolsonaro-Guedes administration (contradictorily to his ultrafiscalist discourse) ended up allowing some improvement in national income, in tax collection and thus in the debt/GDP ratio itself in the last 18 months .


The relationship spending-multiplier-debt

The impact of government spending on the country's public debt indicators depends, among other factors, on the fiscal multiplier, the tax burden and the interest rate paid on debt securities.

So, mathematically, if “g0” is a particular public expenditure as a proportion of GDP; “i” is the average nominal interest rate that remunerates government bonds for “n” years; “t” is the country's tax burden; “m” is the fiscal multiplier; and “d” is the Public Debt/GDP ratio, so it can be said that, everything else constant, the variation, Dd, of the latter resulting exclusively from such expenditure will be

Propensity to consume between classes

The fiscal multiplier depends on the propensity to consume, particularly of the beneficiaries of the social programs generated by such public expenditures. In the case of BF beneficiaries – very poor workers -, this propensity is generally greater than unity (m >1). Because when they receive new extra income, they will consume everything and even, if possible, some of them will even go into debt to minimally complete their survival needs.

Something completely different happens when public spending is not aimed at the poor or at national development, as for example in the case of salary readjustments/bonuses of senior officials at the top of the State career (the castes of judges, prosecutors, high-ranking military, etc. ); or tax exemptions for millionaires and financial/real estate/agribusiness speculation; or even increases in the remuneration of debt securities (the “speculator stock market”) via an increase in the Selic rate. The beneficiaries of such privileges have a very low propensity to consume, since, from this extra income received, they will spend almost nothing on new consumption (since, more than satiated, they already consumed – without such extra income – practically everything they needed with just their regular income ), nor in new productive investments (since to a large extent they are rentier). Spending on the poor (as well as spending on public services that directly serve the poorest, such as public health and education) therefore has a much greater multiplier effect than other budgetary expenditures.


Tax multipliers and empirical evidence

There is empirical evidence that social public spending, particularly those aimed at income transfer programs for the very poor in periods of recession and high unemployment, have a high fiscal multiplier effect. Despite this being a theme that is already somewhat mature and consolidated in the economic literature, technical constraints (related both to the contingency in the sample size – historical data series that are not satisfactorily long – and to the methodological choice in statistical modeling) recommend caution in predicting the magnitude of the impact of such policies on income expansion (Alves, Palma, 2022; Batini, Roni, Weber, 2014; Carvalho, Sanches, 2022).

In any case, recent empirical studies on BF, BPC and AEs in Brazil in recessionary periods show that they tend to generate a new income (accumulated over the course of up to 3 years after the year of expenditure) of around 1,5 ,4 to 8 times greater than the expenditure itself – which can reach up to 2021 times in extreme situations (Cardomingo, Carvalho, Sanches. XNUMX). The magnitude and maturation time of this multiplier depend on the phase of the activity cycle.

When the economy is in the midst of a strong recession, with high unemployment and low (or negative) inflationary pressure, the multiplier tends to be considerably higher. This is not just because the propensity to consume of the target audience of such social spending is high. But also because the propensity to invest and consume of all those involved in the subsequent linkages becomes acutely high amidst strong rising prices and widespread idle capacity across industrial sectors.


idleness and unemployment

And this scenario is not very different from the current one, even with the relative (and limited) improvement in activity during the last three quarters of 2022. On the one hand, there is still a huge mass of families in poverty and at food risk – something that has not been seen for decades. On the other hand, there is still considerable room for recovery in the country for the still weak effective demand, even though there has been a certain recovery in employment (also due to Bolsonaro's electoral packages, which, let us remember, end now, after the election).

Because the contingent in the reserve army – almost 24 million unemployed, discouraged, and underemployed due to insufficient hours – even having been reduced this year, is still approximately the same as that existing in 2017 (that is, well above the average from 2007 to 2014). Because the use of installed capacity in the industry also persists below the levels of 2009 to 2014. Inflationary pressures on the demand side remain weak and those driven by supply shocks (international prices and discontinuities in production chains due to the pandemic) tend to lose more strength in the coming quarters, especially with the rise in international interest rates and the subsequent drop in market liquidity, including those that form commodity prices.

Thus, it would not be reckless nor improbable to assume a multiplier effect of the expenses with the Emergency PEC (mainly the BF, but also other social expenses that it would allow to release) above 1 in the initial impact and above 3 in the accumulated after four years , as suggested by the aforementioned literature.


numerical exercise

The more than 20 million needy families benefiting from the BF 145 billion in BF of the Transition PEC will immediately use all the BRL 600 received monthly in 2023 to consume new food, clothes, shoes, construction material or household appliances. They will spare nothing from such benefit, unlike millionaires and speculators. This will generate an enormous new demand for industry and commerce, which will set in motion the creation of new companies and new jobs. Which, in turn, will make room for new rounds of such a process in order to maintain an increase in aggregate demand for the next 4 to 12 (maximum 16) quarters, approximately, from the date of each payment.

This will drive growth in national income and tax collections far beyond what would occur without such public spending. From the point of view of the intertemporal public budget, over a 4-year horizon, revenue growth will offset at least part of the initial expenditure. And since GDP (the national income) will also grow more as a result of such spending, the debt-to-GDP ratio will most likely end up being reduced.

To assess the isolated effect of the PEC on the debt/GDP debt indicator, “d”, we can outline a rounded numerical exercise, assuming that such relationship is not altered by any other economic variable or disturbance that is not just the direct effects of the BRL 145 billion in extra spending in 2023 (1,53% of GDP) in BF. If these have a multiplier effect (cumulative over 4 years), “m”, equal to 3, they:

(i) They will lead to income (profits and wages) to increase chained and cumulatively until 2026 by BRL 435 billion (three times the expenditure itself), which means growth of 4,58% in GDP only due to this effect;

(ii) They will make the public debt itself suffer effects from both tax revenues and expenditures. As the Brazilian tax burden, t, is 33,9%, the Treasury will collect R$ 147,5 billion more with taxes on this extra income generated (the 435 billion). And, if the BF is financed with new public debt (whose average interest rate, i, is 10,5%), its additional final expenditure will be R$ 216,18 billion (ie 145 billion plus compound interest for 4 years ). Like this,

(iii) will produce a nominal deficit of R$2026 billion by 68,716, that is, a growth of 0,99% in the General Government Gross Debt (DBGG). But,

(iv) the growth rate of “d”, the DBGG/GDP ratio, will be -3,59% (0,99% DBGG growth minus 4,58% GDP growth), causing it to fall from current (Oct/22) level of 76,8% to 74,1%. A drop of 2,7 percentage points in such debt/GDP ratio.

Such results can be confirmed by applying the data in the Equation above:

That is, the BF (as well as part of social spending) tends to be fully or partially self-financing in the medium term, not only avoiding increases (at least significant) in the amount of public debt, but also – in fact – helping to, more than to stabilize, reduce the debt/GDP ratio.

It is necessary to note in the Equation above, that such performance depends on two key variables: mei (since the other variables, ted are given and exogenous in the model). Social policies that have smaller multipliers, m, will be less able to offset initial deficits as they will have less impact on raising income and subsequent generation of tax revenue. Conversely, a lower interest rate, i, will reduce the cost of financing social spending in the medium term, allowing multiplier effects to better express their results in stabilizing debt. The table below shows how much the DBGG/GDP ratio, d, will grow (redder) or fall (greener), with new spending, g0, according to the expense multiplier and the interest rate.

Economic limitations to public spending

That all said, it is important to remember that such public spending instruments are not unlimited in use. After a certain point and under certain circumstances, they tend to lose effectiveness and bring increasingly exhausting side effects. This stems from several factors of which we highlight two. First, social spending can have, as we have seen, a greater or lesser multiplier effect depending on the type of program concerned and the situation in which it is implemented – if the multiplier reduces over time, the generation of income and tax revenue will falling until it no longer compensates for the increase in debt and its costs. Second, and more importantly, the responsiveness of aggregate supply may differ depending mainly on the economic situation. That is, when aggregate supply is more elastic and production chains are free of major sectoral, potential or current bottlenecks, reactions to the heating up of injections of excess demand generated by social spending tend to be quick in order to avoid pressures inflationary pressures, pent-up demand, shortages or even deficits in the trade balance.

Otherwise, a combination of some or all of these effects may not only sour the environment, but also make the social program more costly and ineffective, which will even have its multiplier reduced by the growing restrictions on the flow of chained generation of income/consumption/ investment. As a result, as the table above demonstrates, the debt/GDP ratio can grow. Growth that – depending on the intensity, size and persistence of spending – can accelerate and, together with the aforementioned inflationary pressures, lead the “markets” to force an increase in interest rates – which, then, would lead to a spiral of debt growth.

It is worth remembering that lower unemployment rates (or idleness of installed capacity) do not necessarily imply inflationary pressure - supposedly due to the increase in wage and production costs imposed by "factor scarcity" induced by the demand side[I]. This is also due, on the one hand, to the high structural informality of the Brazilian labor market and, on the other hand, to the relative operational flexibility allowed by technical and productivity advances. Of course, supply shocks (including exchange rate shocks) can produce inflationary pressures. But they must be tackled on the supply side (state regulation in markets, in managed price supply chains) and, therefore, not be a reason to inhibit necessary public spending.



In the case of economies sunk in more acute recessions, especially facing higher levels of unemployment and deflationary risk, it is possible to finance part of the expenses only with monetary issuance by the Central Bank (Bacen), without the need to place public bonds on the market, increasing the debt . Thus, as a counterpart to public spending, neither the Treasury needs to launch securities on the primary market (borrowing), nor does the Bacen need to sterilize monetary expansion with Committed Operations – in which it temporarily sells public securities on the secondary market and, thus, increases the debt public. Bacen can only debit the Single Treasury Account, at its request to make an expense, creating currency (allocating it to a demand deposit at a commercial bank where the beneficiary/supplier of the program generated by the expense has an account).

Of course, such a mechanism is not unlimited either. Its prolonged use outside recessionary periods, similarly to debt financing, can (depending on the multiplier, etc.) lead to rigidity in aggregate supply. Moreover, here particularly, since Brazil is not a sovereign issuer of convertible currency, the risk of capital flight “through international arbitration” is always present. An escape that could start as soon as “the markets” start to consider that the excessive injections of purchasing power by the monetary authority are depressing domestic interest rates too much.


expansion of limits

Both expenditure financing mechanisms (issuance of bonds or monetization) may have their limits extended and/or expanded if there is greater state intervention in the financial and goods markets. This would allow more degrees of freedom in handling the limits of both fiscal/monetary policy and aggregate supply.

On the one hand, capital controls would make it possible to curb the blackmail of the financial markets in rejecting the offer of securities in Treasury auctions, threatening speculative attacks, or forcing the Selic rate to rise – whose budgetary cost is in itself the greatest source of debt growth and, therefore, of flattening social budgets. The regulation and centralization of the foreign exchange market and other derivative markets (and, at the limit, the nationalization of commercial banks) would also remove bargaining power from speculators and financial rentiers in the political (and economic) dispute over the public budget. Of course, progressive tax reform would also help.

On the other hand, instruments to make aggregate supply more elastic would also need to be implemented, such as, for example, strong state regulation of food stocks – with a boost to public warehouses (Conab) –, renationalization of strategic sectors and the production of basic goods of the production chain (steel, mining, fertilizers, fuels/refineries, electricity, etc.), control of administered prices, investments in infrastructure (roads, railways, ports, energy) that would increase productivity.

This obviously means that structural reforms such as those suggested above are necessary to guarantee more budgetary space. To enable not only emergency, occasional and sporadic social policies, such as the BF, but also and above all those (more perennial and with much higher cost) aimed at the long-term development of the country – such as the universalization of Public Health and Education services , free and of good quality; popular housing programs, public transport, reindustrialization, etc.

Finally, it should be noted that the criterion for deciding to implement strategic expenditures of this type cannot be based solely on the fiscal multiplier effect and short/medium term debt. Especially because they are more difficult to measure given the complexity of the programs and investments to be funded, whose spillover effects are dispersed and take a long time to mature. The criteria should always also consider each project's potential for long-term social and national development.


Limiting spending is also a policy.

But far beyond economic limitations, the main obstacles to countercyclical and development-oriented fiscal policies are political. This is because, very different from the traditional understanding of conventional economic theories, including Keynesian ones to a large extent, the State is not neutral. Under capitalism, the state is bourgeois. Its institutions and mechanisms of power were set up to serve the interests of the dominant classes, to facilitate the good management of their businesses and profits. The class struggle can force the bourgeoisie to accept temporary concessions within the framework of such institutions. Concessions that it will try to revert as soon as the correlation of forces is more favorable to it. And the fierce dispute over the public budget is one of the most permanently tense stages of this battle.

But it is not just a dispute over the use of the treasury. There is an underlying war for power. As noted by Kalecki, despite fiscal expansion helping to realize capitalist profit by allowing government spending to supplement private sector demand, capitalists as a class tend to become refractory to Keynesian (fiscal-expansionist) policies particularly in two situations (Kalecki, 1977, pp 64-8).

First, when such spending policies are intense enough to reduce the pool of unemployed too much. For this would give workers and their unions bargaining power over wages and benefits that employers cannot accept. Not so much because of higher labor costs (payroll) – which, after all, would be offset by greater realization of added value with effective demand boosted by public spending. But above all due to the political power and collective agitation that unions, parties and workers' organizations tend to develop in an environment of full employment. High unemployment is, therefore, something always politically desired by the bourgeoisie as an improvement in the conditions for the reproduction of capital – not only infrastructural (economic) conditions, but also superstructural (political) conditions. This was even more accentuated with the end of the cold war, when the “socialist” threat – which forced greater tolerance of “Keynesian policies” in capitalist countries – was apparently reduced.

Second, when public spending and investment extends to branches of the economy that the private sector operates or intends to operate, the latter rebels and demands privatization. Networks of private hospitals, schools and universities, for example, prefer that the state cut public funds to the SUS and public education in order to get rid of the competition imposed by it and give more space to private profit – even more so in periods of falling profitability. general production. The same occurs with the sectors of energy, transport, oil, etc. Hence the pressure for more and more privatizations.

Finally, one more reason for opposition by the ruling classes to public spending can be included. With the secular fall in the productive profit rate – even if interspersed by cycles with intermittent recoveries – there is a tendency for the financial valuation of capital to grow through ever greater instruments of fictitious capital. This has led the ruling classes to focus more and more on the logic of financial rent.

For which the public budget must, as a priority, be focused on guaranteeing the short-term payment of interest on the debt. Spending on multi-year maturation multipliers is more difficult to enter into this logic. In the case of a peripheral country like Brazil, its repositioning (forced by the imperialist logic of international capital) in the international division of labor, causes the economy to move towards an accelerated reprimarization/deindustrialization – which only sharpens such logic.



Public spending is essential in reducing the suffering of the poorest, especially in a country so atavistically unjust, marked by more than 300 years of slavery and its subordination in the international division of labor that continues to impose capitalist accumulation based on ultra-exploitation. Such spending makes it possible to improve income distribution and launch essential instruments for the nation's long-term development, its (re)industrialization, with technological and productivity advancement. Furthermore, they are essential in the management of economic cycles.

But far beyond distributive and progressive reasons, such expenditures are also justifiable from the point of view of fiscal sustainability, even being budgetary and financially productive. Social expenditures, especially those with a high multiplier effect, make it possible to recover Treasury revenues and thus stabilize and even improve the public debt pattern.

Any prospect of economic recovery and development in the country requires defeating the policy (and the simulacrum of consensus, imposed from above) of austericidal fiscalism in force in recent decades.

*Alberto Handfas Professor at the Department of Economics at the Federal University of São Paulo (UNIFESP).



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[I] The degree of flexibility in supply chains is generally measured by unemployment rates and/or utilization of installed capacity, although these thermometers do not always faithfully reflect supply responsiveness, which is ultimately determined by availability (both willingness and availability). business possibility/opportunity) to invest, which in turn depends on the relative accumulation-profitability (Shaikh, 2015, chap 5).

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