transition PEC

Image: Stas Klevak, 1994
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By MARLON DE SOUZA*

A rigorous fiscal economic policy is ineffective if it is not accompanied by an equal social responsibility policy.

There is no dichotomy between fiscal responsibility and social responsibility. It is not necessary to make a choice “either I have one or the other”, it is possible to have both. What is ineffective is a rigorous economic policy of fiscal responsibility and disregard for social responsibility. If the government is fiscally irresponsible it is clear that this has social impacts. But also if it is fiscally responsible at the expense of the social field, this generates bad fiscal results because the country stops growing, stops generating jobs, government revenue drops and obviously has an impact on the public accounts themselves.

The Proposed Amendment to the Transitional Constitution (PEC) addressed by the Transitional Cabinet of President-elect Luiz Inácio Lula da Silva is to install from January 1st – when he assumes the Presidency – fiscal responsibility concomitant with investments in social programs.

The Transition PEC is a first step in a strategy to change the current liberal economic policy of the current Bolsonaro government to resume the country's developmental economic policy. It is not a rupture, but a smooth modification, it was fully announced during the campaign by President-elect Lula and is inserted in predictability, credibility and stability.

The economic policy of the current Minister of Economy Paulo Guedes in general and that of the Expenditure Ceiling – a rule instituted in 2016 by Amendment to the Constitution that limits the increase in public spending to the growth of inflation for 20 years – proved to be inept and led Brazil to stagnation and social collapse. It is important to distinguish that this is not a criticism of Paulo Guedes, but of his policy. The acting Minister of Economy is cordial, polite, has an unquestionable academic background, is a successful financial executive and has led the transition (so far) to the elected government with admirable competence

But the current economic policy of the Bolsonaro government is mainly responsible for the breakdown of the population's living conditions, instability and setbacks in production and consumption. This radical fiscal rule of the Expenditure Ceiling was not only ineffective in reducing the public debt, but on the contrary increased it, data from the Central Bank (BC) reveal that in the period of 2015 the public debt of Brazil was 66,5% of the Domestic Product (GDP) and today is around 74% of GDP.

In a press release from the Ministry of Economy entitled “Clarification on the situation” released on the last 11/12, it states that “it will be the first government to end its mandate with a falling debt: in 2018, the debt/GDP ratio reached 75,3. 60,5%”. It is information that is not valid, the Lula government reduced the public debt by almost half. President Lula reduced the public debt from around 37% of GDP to 20% of GDP. The note from the Ministry of Economy also states that “previous governments increased the debt/GDP ratio by almost 1.367 points of GDP (…) without these resources translating into an effective improvement in the quality of life of the population”. The quality of public investments by PT governments is clearly identifiable and can be presented with official data, which are indeed irrefutable. IBGE data show that per capita income fell to R$ 2021 in 10,7 and that the average income from work chose 1% in 2.447 year, for the record low of R$ 4 in the 1.921th quarter of last year. The minimum wage and initial hiring shrank to BRL 2021 in XNUMX and recorded the first drop in five years.

The Expenditure Ceiling and the economic policy of Paulo Guedes resulted in extremely high rates of underutilization, precariousness of the work force, while the industry slashed. Strategic sectors of public assets were privatized and denationalized, public banks and development promotion companies were destroyed, at a time when the infrastructure picture is bleak.

Social policies, civilizing achievements of more than one generation, were mutilated. Women, blacks and young people suffer from the dismantling of public policies, in order to reinforce historical discrimination. Indigenous populations, quilombolas, peoples and traditional communities had their conquests attacked. Health, social assistance and social security suffered attacks and setbacks. Education, science and technology have had investment cuts and regressive changes and need to have their budgets recomposed.

The GDP of the four years of the Bolsonaro government grew less than that of the Fernando Henrique Cardoso (FHC), Lula, Dilma and Temer governments. The GDP was only greater than that of the second Dilma government because the measures that President Dilma Rousseff sent to Congress to correct the Brazilian economy from the impacts of the global crisis were boycotted and sabotaged by the then President of the Federal Chamber Eduardo Cunha and by some deputies. Furthermore, it is important to point out that the second Dilma Government was interrupted by a coup d'état.

Although the Bolsonaro government has gone through the atypical events of the pandemic and Russia's Special Military Operation in Ukraine, President Lula led Brazil into a much larger global crisis in 2008 that was endogenous to the global financial and economic system. On average GDP growth were; in the governments FHC (1995/1998) 2,5%, FHC (1999/2002) 2,3%, Lula (2003/2006) 3,5%, Lula (2007/2010) 4,6%, Dilma Rousseff (2011) /2014) 2,4%, Dilma Rousseff (Jan. 2015/August 2016) – 3,4%, Michel Temer (Aug. 2016/Dec. 2018) 1,6%, Jair Bolsonaro (2019/2022) 1,5 %.

Ricardo Bielschowsky – economics professor at the Federal University of Rio de Janeiro (UFRJ) and economic affairs officer at the Commission for Latin America and the Caribbean (ECLAC) – identifies that the economic policy of President Lula’s government guidelines is social-developmentalism whose the foundation is the dynamization of the Brazilian economy to rebuild the country with full employment, with macroeconomic stability, wages accompanying productivity gains, formalized jobs and low external vulnerability through permanent increase in investment – ​​with environmental sustainability.

Therefore, the Transition PEC is intended to achieve emergency social results based on income distribution, but more than that, this PEC is inserted in the establishment of a medium and long-term social-developmentalist economic policy strategy to trigger reindustrialization, productivity and competitiveness through fixed investment, training, productive diversification and technological innovation.

It is necessary to specify that the PEC of the Transition is not from the Lula Government, not least because it only takes office on January 1st, but it is to correct the abandonment of the crucial issues that the Bolsonaro government provided in the Budget project for 2023. This is the Budget presented by the Bolsonaro government now in 2023 which will be the 2023 budget execution and for this reason the PEC is one of the institutes to correct it.

This year, President Lula affirmed his commitment to fiscal and social responsibility in countless interviews with numerous media outlets across the country in the pre-election period, during the election and now after being elected. For this reason, there is no reason for capital revolt, turmoil and market instability. President Lula's commitment to fiscal responsibility is already written in history as President of the Republic, which he was for eight years. He produced a primary surplus during all the years he governed the country, paid the foreign debt and the same can be said of Vice President Geraldo Alckimin, who always governed the state of São Paulo with fiscal responsibility.

The Transition PEC addressed by the elected government was proposed to fix the Union Budget for 2023 because the budget piece presented by the current administration of Jair Bolsonaro (PL) foresees a value of R$ 105 billion for the Brazil Aid – which is now back to being called Bolsa Família, equivalent to R$ 405 per beneficiary. As President Lula's commitment is to allocate R$600, the elected government needs to fit R$200 more into the bills to pay the 21 million people registered for the benefit. This increase is equivalent to R$ 52 billion. Added to this amount is another R$ 18 billion to pay for another commitment by President Lula in the campaign, which is to add another R$ 150 more per child up to six years old for families.

The original PEC proposed by the Transition Cabinet provides for an authorization of fiscal space of up to R$ 198 billion outside the Expenditure Ceiling (a rule that limits the growth of expenses to the previous year's Budget, plus inflation) for four years, being about R$ 175 billion related to the Bolsa Família and R$ 23 billion for investments from possible collections greater than expected.

Although it is not detailed in the PEC, members of the Transition Cabinet point out that the R$ 105 billion reserved in the Budget that are below the ceiling and the R$ 23 billion from eventual collections greater than expected outside the ceiling will be invested to increase transfers for the national school lunch program, from Farmácia Popular and investing in infrastructure and housing works – Minha Casa, Minha Vida, as well as recomposing the budget for Education and Health.

Some congressmen request that the PEC already point out specifically where the amount will be applied, but the rapporteur for the 2023 Union Budget, who is Senator Marcelo Castro (MDB/PI), says that the related list of investments will not appear in the PEC, because it will be described in the Annual Budget Law (LOA).

The four-year period for authorizing public investments outside the Spending Ceiling can and is being negotiated in the Federal Congress. What needs to be understood by society as a whole is that the diagnosis of the newly elected government's Transition Cabinet demonstrates that this PEC is a legislative device to resolve the emergency. The Bolsonaro government bequeathed a social abyss to the Lula government.

The Senate concluded on Wednesday (7/12) the voting in plenary, in two shifts, of the proposed amendment to the Constitution (PEC) of the Transition. The approved text provides for the expansion of the ceiling by R$ 145 billion to accommodate Bolsa Família and other programs, validity of two years for this budget increase, 2023 and 2024 and deadline until the end of August 2023 for the Lula Government to send Congress a new fiscal regulation to replace the Expenditure Ceiling.

The PEC was the device defined by Congress to reach R$ 600 per month, and still guarantee an additional R$ 150 per child up to 6 years old in the family. As the acting president Jair Bolsonaro (PL) had sent the 2023 Budget project to parliament with a reserve of BRL 105 billion for Bolsa Família – an amount that only allows the monthly payment of an installment of BRL 405 to beneficiaries – still stay $ 105 billion that can be used for public investments in the most diverse areas. The rapporteur of the Mixed Budget Commission (CMO), Senator Marcelo Castro (MDB/PI) after meeting with coordinators of the Transition Cabinet, declares that the open space of R$ 105 billion in the 2023 Budget will be allocated mainly to the areas of Health and Education . The parliamentarian also mentioned other points that will be covered, such as the Minha Casa Minha Vida program and the DNIT (National Department of Transport Infrastructure).

According to Marcelo Castro, the intention is that the highest percentage will go to Health, around R$ 22,7 billion, in investments for medicines, vaccines and guaranteeing the functioning of the Unified Health System (SUS).

In addition, the wording approved in the Senate allows the government to use up to R$ 23 billion outside the investment spending ceiling this year. Resources will come from excess revenue – if the Union raises more tax money than anticipated.

The calculation assumed by deputies from the PT bench is that with the approval of the PEC allowing for more R$ 145 billion off the Budget - within the tax rule – the money can be used in the following way; $ 70 billion for the Bolsa Família monthly fee and pay the additional per child and BRL 75 billion for a real increase in the minimum wage above inflation, complementing the Popular Pharmacy, school meals, among other programs.

Another point of the approved text authorizes the new government to use the money forgotten by workers in PIS/Pasep quotas without this expense being accounted for in the spending ceiling. According to Caixa Econômica, BRL 24 billion in PIS/Pasep quotas are available to more than 10 million people. According to the PEC, this money could also be used by the government for investments.

The PEC also removes from the limitations of the spending ceiling investments financed through international partnerships, donations received by federal universities, donations for socio-environmental projects and those related to climate change, the transfer of resources from the states to the Union to carry out engineering works and services .

In addition, the PEC also extends until 2024 legislation that already exists to help the government comply with public accounts, because it unlinks (releases) 30% of what is collected with social contributions to cover other expenses, without prejudice to Social Security.

In the plenary of the Senate, a PEC needs 49 favorable votes to be approved. The result showed the newly elected government's political capital and high articulation capacity: 64 votes to 16 in the first round, and 64 to 13 in the second round. Now the Transition PEC is being processed in the Chamber where it needs at least 308 favorable votes in two rounds to be enacted. On Friday (9/12), Lira attached the article to PEC 24/19, authored by federal deputy Luisa Canziani (PTB/PR), which has already been approved by the Chamber's CCJ and completed its 40 regimental sessions. With this, the PEC of the Transition can go straight to the appreciation in Plenary.

If there are substantial changes in the House, the text returns to vote in the Senate. The Transition Cabinet and the PT bench work so that the Chamber does not change the text approved in the Senate with the perspective of approving the Transition PEC until December 16th. For the Legislative to consolidate the value to the final report, Congress still needs to vote on the Budget Bill (PLOA). The document is prepared by the rapporteur of the CMO, Senator Marcelo Castro (MDB/PI).

If a PEC or some institute that has some kind of authorization is not approved for the Bolsa Família of R$ 600 to be maintained, so that the budget for social programs is recomposed, on January 1, Brazil will fall into a social tragedy. The PEC is aimed at solving this urgent problem and so that a significant portion of the Brazilian population is not subject to constant uncertainty and that the country has legal security.

The market has no reason to be surprised by the Transition PEC. President Lula is from a rare lineage of politicians, almost extinct in Brazil, but one that dignifies and ennobles the exercise of politics. Lula is a political agent characterized in such a way that when he says his word, the commitment assumed is worth even more than a document with a signature registered in a notary. And it was this political program already materialized in this PEC that was voted and approved at the polls by the majority of the Brazilian people and it is this program that now has to be implemented in the country for the next four years.

Faced with this situation, the first and most urgent public commitment made by President Lula is to restore the living conditions of the vast majority of the Brazilian population – those who suffer most from the crisis, with the cost of living at home and in the family. It is these Brazilian men and women who must be helped, both through emergency actions and through structuring policies, from the first minute of a government that was elected to rebuild Brazil.

 

Tax framework

The technical staff of the Economic Working Group of the Transitional Cabinet of the elected government is of the highest qualification. Joining the group of economists André Lara Resende and Pérsio Arida – creators of the Real Plan – is fruitful. Public figures with careers in the private sector coming from the liberal economic school made significant contributions to the country in fighting inflation. Resende was special advisor to President Fernando Henrique Cardoso and president of the National Bank for Economic and Social Development (BNDES), Arida also chaired the BNDES and BC.

André Lara Resende has provided important contributions to the Modern Theory of Money. In his work released in 2021 entitled Consensus and Contrasensus (2020) brings together essays in which he criticizes the positions mainstream of economic theory such as the obsession with fiscal control and the classical laws used to explain the relationships between interest, money, inflation and growth. Pérsio Arida developed formulations despite the rationality of public spending. Resende and Arida provide a vital contribution to help in the elaboration of macroeconomic policies to control inflation and new fiscal rules. There are scientific demonstrations of some very specific neoclassical macroeconomic and microeconomic methodologies that are effective for growth and capital accumulation. I use the term neoclassical as a scientific, sophisticated and far from simplistic terminology.

Of the economists linked to the Workers' Party (PT) there is Nelson Barbosa, who was Minister of Planning and Finance in the Dilma government. Unicamp economics professor Guilherme Mello is a prominent name and one of the most relevant of the current generation that formulates the Brazilian economy. Mello is a professor (Unicamp) at a center for building heterodox thinking – Developmental Economic Theory, therefore he is the legatee of the economist professors who built this path, such as Wilson Cano, João Manuel Cardoso de Melo, Luiz Gonzaga Belluzzo, Maria da Conceição Tavares.

The recently announced new Minister of Finance and USP professor Fernando Haddad, who also figures in the coordination of the Economics technical group, is an undisputed political leader, one of the main intellectuals in Brazil, he dominates economic thinking on the frontier of classical theories to contemporary theories from politics industrial to the financial market. Fernando Haddad is a statesman and his activity in this group is the certainty of the improvement of the government that starts on January 1st and of the country. When observing the investment grade – from the risk rating agencies – from the City Hall of São Paulo when Haddad was the governor of the municipality, his executive capacity in the economic area can be seen, he was the first mayor in the country to achieve a high investment grade.

The economic policy initiated with the Transition PEC was approved at the polls by the majority of the Brazilian people when they elected Lula president. The fiscal austerity policy and the Spending Ceiling were defeated at the polls in 2022. The 20-year Constitutional Amendment to the Spending Ceiling approved by the Temer government in 2016 is Sui generis, does not exist in any other country. Similar public spending regulation programs are implemented by ordinary or complementary laws and last for 3 years (as in Sweden in 1997) or four (Netherlands in 1994 and Finland in 2003).

It is unreasonable to apply (Temer/Bolsonaro governments) a fiscal policy for 20 years to attack a situational issue related to public accounts. As already presented here, this rigorous policy of restricting public spending did not result in growth or reduction of the public debt, converted the country into economic stagnation and the public debt increased.

The most serious thing is that, according to the research economist at the Brazilian Institute of Economics of the Getulio Vargas Foundation (FGV IBRE) Bráulio Borges, Bolsonaro government spending above the ceiling totaled R$ 794,9 billion from 2019 to 2022. $53,6 billion in 2019, BRL 507,9 billion in 2020, BRL 117,2 billion in 2021 and the estimate is that it will be BRL 116,2 billion this year.

It is important to point out the exceptionality of May 2020, Congress approved the War Budget, which suspended – which is fully justifiable – the Ceiling in the case of expenses related to the pandemic. That year, the R$ 507,9 billion outside the constitutional limit covered expenses such as extra resources for the Unified Health System (SUS), compensation for States and municipalities that had a strong loss of revenue, the program to reduce working hours for avoid layoffs in companies, and Emergency Aid of R$600, which the government initially wanted to grant only R$200.

Already in July 2022, the Bolsonaro government presented a PEC creating social programs a few months before the elections with an estimated cost outside the ceiling of R$ 41,2 billion intended to double the value of the gas voucher, expand the Auxílio Brasil of R$ 400 for BRL 600 and for the creation of aid for self-employed truck drivers and taxi drivers of BRL 1. Therefore, if the Bolsonaro government spent BRL 794,9 billion outside the ceiling, an average of around BRL 159,34 in the period between 2019 and 2022, there is now no reason for any kind of market shock with the Transition PEC which estimates authorization of a fiscal space of R$ 148 billion in the wording approved in the Senate or even R$ 198 billion in the original text of the PEC.

Leda Paulani – professor of Economics at USP and former Secretary of Planning, Budget and Management of the City of São Paulo –, in her book Modernity and Economic Discourse (2005) where he deals with the foundations of Economic Sciences and the methodological discussion, describes from McCloskey (1985) that there is a communicative action loaded with knowledge, moral conscience and interest to build a discourse with an air of economic science.

In other words, certain some – not all economists mainstream, economy analysts from the corporate press and the mainstream press themselves defend the preservation of the Spending Ceiling and the containment of social investments in order to build an economic discourse that legitimizes and advocates the interests of maximizing profit in the capital market.

In the same work Paulani recalls that in his critique of political economy Karl Marx shows that a discourse in universal principle always has a distinct position that reveals its classist particularity. In the specific case, most of the critics of the Transition PEC act ethically as spokespersons for rentiers and the financial market.

In the public debate on the Expenditure Ceiling PEC, it is the Union Budget that is in dispute. That's what it's about. Brazil should close 2022 with a public debt of around 74% in relation to GDP. In a comparative analysis, the USA has a public debt of 97% of GDP, Japan has a public debt of 229,7% of its GDP, England 99,6% of its GDP. This does not mean that the need for a fiscal rule should be disregarded.

A new fiscal rule must be institutionalized in the country, with guidelines for public investments and the debt, in tune with the planning of goals for an economic growth cycle and with flexible devices for government action in times of greater adversity.

According to the National Treasury Secretariat, in the 2021 executed budget, the Federal Government Budget spent 53% only to pay interest on the public debt. According to the Central Bank (BC), the total expenditure on public debt interest in 2021 was R$ 448 billion, much higher than the R$ 198 billion requested by the Transition PEC for investment in social programs and infrastructure.

The mechanisms that the federal government uses to pay the public debt are taking new loans, selling public debt securities in the capital market. Shareholders, owners of financial capital, buy these debt securities and are remunerated by the federal government with the payment of an interest rate of 13,75% per annum.

By opposing the expansionist policy of public investment, these rentiers and their spokespersons (some congressmen, some economists, some columnists and some journalists from the mainstream press) are disputing the Union Budget so that a significant percentage of Brazil's revenue remains earmarked for the payment of its remuneration from the credit debt market and thus expand the accumulation of financial capital of the large operators of the capital market.

Strictly speaking, the rentiers are disputing that an expressive percentage of the Union Budget that is currently allocated to their remuneration is not reduced based on a possible increase in the percentage of the Union Budget in investment, that is, they are disputing the federal government's revenue with resources that are being prospected for Bolsa Família, Health, Education and Infrastructure.

No one is saying that the newly elected government should not pay the interest on the public debt or oppose the capital market, neglect or extinguish the financial market or the stock exchange. Economic Sciences have already proved that this does not work. No developmental economist takes this position. It is necessary that the financial market is not considered from a moralistic point of view as if it were a person, but the financial market must be considered from a structural perspective as its social function.

What developmental economists point out is that part of the profitability of the financial market is also directed towards new investments that generate new productive capacity – especially the industrial one with high added value, to generate new productive capital.

As explained above, the text of the PEC approved in the Senate and now being discussed in the Chamber, if it comes into force, the Lula Government will have to present, by August 2023, a new fiscal framework that will replace the Spending Ceiling law. The prevailing position among developmental economists has always been that not only should the Constitutional Expenditure Ceiling law be abolished, but that the Expenditure Ceiling should be replaced by a new fiscal rule to be approved by Congress.

However, the details of the new fiscal rule are not proposed in the Transition PEC, but according to members of the Transition Cabinet, it will certainly be the object of a proposal by the government elected in 2023.

Numerous economists' proposals for a new fiscal rule for the country have been presented to society in recent months. The Transition Cabinet has not yet released a defined position on the new fiscal rule to be presented by the new government, but a project that has gained greater prominence is that of, instead of a spending cap based on the previous year's inflation in relation to GDP , if you define the fixed percentage of public investments in relation to the GDP of the previous year, for example, if this rule came into force in 2023, from then on this new fiscal rule would establish a public investment of up to 19% of GDP, which is the percentage recorded investment that the breakdown of the executed budget for 2022 must register.

Leda Paulani is inclined towards this new fiscal rule format, based on the definition of a debt growth target compatible with the GDP growth related to a certain interest rate of the economic situation, and from there an estimated trajectory of the growth of the public debt. According to Leda Paulani, it is necessary to pay attention to the public debt, but the big problem is when there is an explosive trajectory of public debt growth, which is not the case in Brazil, as can be seen in a comparative analysis of the public debt of others. developed countries and in countries at a similar stage of development to Brazil in relation to their own GDP.

Luiz Carlos Bresser-Pereira – Professor of Economics at the Getúlio Vargas Foundation (FGV/SP) and former Minister of Finance – considers a new tax rule that should be evaluated; one that varies with nominal GDP corrected for inflation and Brazil's GDP and population together. The FGV/SP professor also points out that the recently adopted experiences of fiscal rules in Colombia and Peru, which have been shown to be beneficial, should be carefully observed. Bresser-Pereira describes that in these two countries the spending limit system of the fiscal rule is structural, taking into account, for example, changes in international commodity prices “which in the case of Brazil an innovative device like this is very important, it is a very smart measure”.

Economics professor at Unicamp Luiz Gonzaga Beluzzo argues that as the market is unstable, it fluctuates a lot, a countercyclical fiscal rule should be adopted. Beluzzo describes that a new rule can be defined that separates public investment from current spending, because investment works as a regulator of the economy's performance and to stabilize the uncertainties of the private sector. “The investment rule is as follows. When the economy declines, public investment has to rise to ensure that the private sector does not withdraw from investment. And at the same time, when the economy is on an expansion trajectory, public investment has to accommodate”, clarifies the professor.

Luiz Gonzaga Beluzzo also points out that it is necessary to classify what investment is in the investment rule. For the economist, education and health should be categorized as investment, which also includes infrastructure because education and health are part of what is called human capital.

Former Minister Nelson Barbosa also considers that fiscal stability means having a stable public debt in proportion to GDP. Nelson Barbosa illustrates that successful international experiences show that the main focus should be public spending and this is the way to lead to debt sustainability. Nelson Barbosa defends an association of the fiscal issue with the BC's inflation targeting regime. The former Minister characterizes that, just like the Central Bank, when the country does not reach the inflation target, it explains when it is eventually not met and what are the measures that will be adopted to bring inflation back to the target, a principle similar to that of the monetary policy of the Brazil can be a guiding principle for the new tax rule. Nelson Barbosa also considers that the new fiscal rule provides the necessary flexibility to manage short-term shocks, maintaining the predictability of fiscal policy.

Future Minister Fernando Haddad has declared that in order to format the new fiscal rule, he will hear, in addition to the Transition Cabinet, academia, the National Treasury and trusted economists.

 

Public investment and multiplier effect

Leda Paulani recalls that as Brazil today is not on a trajectory of uncontrollable public debt growth, there is no reason to be reluctant to increase public investments. Leda Paulani also exemplifies that all the other major economic crises that Brazil has been hit by were due to external effects, lack of international currency, and Brazil does not have this problem today. According to BC data, the country has approximately US$ 327,6 billion in international reserves – compounded during the Lula government – ​​and the market knows this, foreign investors know this. Although the international economy for 2023 requires some attention, mainly because of Russia's Special Military Operations in Ukraine, there is no measurement that points to the possibility of a default of our economy or a global economic cataclysm.

Leda Paulani recalls that in the first year of the pandemic, forecasts were that the Brazilian GDP would plummet, which was not confirmed and due to the Auxilio Brasil of R$ 600, the diagnosis was that in October 2022 the public debt in relation to GDP would reach 80% and decreased to 76,8%. And this result is directly related to the investment made by Auxílio Brasil, which the Bolsonaro government was initially reluctant to implement and leverage.

Leda Paulani explains that the government's public investment means income in people's pockets, not just direct income transfer programs such as Bolsa Família, but investment in housing and infrastructure, companies and people sell services to the government and when capitalized they will buying services from others is what Economic Science calls the multiplier effect, that is, it reactivates the economy, increases the country's productive capacity and therefore generates employment, income, capital accumulation, growth and economic development.

In a recent meeting with bankers at the Brazilian Federation of Banks (Febraban), the Finance Minister of the future Lula government, Fernando Haddad, also pointed out that it is necessary to improve the quality of public investments, as well as to rethink the various authorized expenses and other dammed-up expenses, such as in the area of science and technology and environmental control.

At the same event, Fernando Haddad highlighted that one of the priorities of Lula's third government will be Tax Reform. He mentioned that President Lula intends to submit a proposal to reformulate taxes on goods and assets. Fernando Haddad also stated that there is a consensus among economists that the quality of public spending in Brazil “has deteriorated a lot”, with a “budget struggling to reach the programmed objective”.

On the foreign trade agenda, the future Minister of Finance Fernando Haddad has cited the need to consummate the agreement announced in 2019 with the European Union (EU) in 2019. The negotiation takes more than 20 years to be implemented and will mark, if finalized. The treaty is the most ambitious and the beginning of an ambitious treaty for South American countries. The balance of 2019 by the Ministry of Economy itself is that a free trade area between Mercosur and EU countries would represent an increase in Brazil's GDP of R$ 87,5 billion in 15 years. One of the main reasons why European countries have not rectified the agreement is because of the increase in fires in the Amazon.

The rapporteur for the 2023 Budget Senator Marcelo Castro (MDB/PI) defined how much each sector should receive after discussing it with congressmen in recent weeks and meeting on Sunday (11/12) with the participation of president-elect Luiz, and vice-president elected Geraldo Alckmin (PSB) in which also participated the Minister of Finance Fernando Haddad and the future Minister of the Civil House Rui Costa, the ex-minister Aloizio Mercadante, the national president of the PT, Gleisi Hoffmann, and the senator-elect Wellington Dias (PT -PI). The report is still being prepared and could suffer.

This Monday (12/12) the acting president, two weeks before the end of his mandate, signed a Provisional Measure (MP) to increase the minimum wage to BRL 1.302 from January 1, 2023. The increase in salary represents a readjustment of 7,4% in relation to the current R$ 1.212. According to the Bolsonaro government itself, the National Consumer Price Index (INPC) should end the year at 5,81%, which means that with this MP the real gain in the minimum wage would then be around 1,5%.

This inflationary percentage readjustment and salary increase of 7,4% was already foreseen in the proposal of Budget for 2023 sent to the National Congress in August, which means that when Jair Bolsonaro sent the 2023 Budget to Congress, he did not intend to grant a real gain to the minimum wage, but only the adjustment of inflation.

The real increase in the minimum wage and distributive policy accompanied by GDP growth is one of the axes of the guidelines of President Lula's government program.

Senator Marcelo Castro details that in the wording for the 2023 Budget, the Bolsa Família program and Health and Education actions will be the largest sectors included in the distribution of extra resources in the budget. The Ministry of Citizenship will have R$ 75 billion — of which R$ 70 billion will be used to maintain the minimum benefit of R$ 600 from Bolsa Família and an additional R$ 150 per child up to six years old. The other R$5 billion will finance other portfolio actions.

Health has scheduled to receive R$ 22,7 billion. Education will have R$ 10,9 billion. To reduce the housing deficit, the My House, My Life program, should have an additional R$ 9,5 billion.

About R$ 6,8 billion will be earmarked for the real increase in the minimum wage. The Dnit (National Department of Transport Infrastructure) should have an increase of almost R$ 11 billion, the Science and Technology portfolio, R$ 5 billion. The Ministry of Defense should receive another R$ 1 billion. For Justice and Public Security 800 million, about R$ 4 billion for Culture.

Marcelo Castro also foresees to reserve R$ 3,2 billion of the open space with the Transition PEC to pay for the readjustment of the Executive's servers. The amount should not represent an increase, as it will offset the same R$ 3,2 billion that had already been allocated to this measure using resources from the rapporteur's amendments.

According to a preliminary diagnosis by the work teams of the Transition Cabinet, the proposed Budget for 2023 sent by the Bolsonaro government has a forecast cut of 42% in the discretionary funds of the Ministry of Health, used in the purchase of materials, equipment and for investments.

The reserve for the Popular Pharmacy program – which distributes basic medicines free of charge or with a discount of up to 90% through partnered private pharmacies – fell 59%, from R$ 2,48 billion this year to R$ 1 billion in 2023.

In the area of ​​education, the work team points to a “budget setback”. Federal money for meals currently ranges from R$0,32 to R$1,07 per day per student. As for higher education, the budget proposal for 2023 sent by the Bolsonaro government to Congress is BRL 232 million. With regard to Universities and institutes, the concept is that the investment resources are recomposed to the reality of 2014 (corrected for inflation), more precisely a budget allocation in 2023 of R$ 1,6 billion.

In the area of ​​Science and Technology, in turn, there is a demand of R$ 4,2 billion for the National Fund for Scientific and Technological Development (FNDCT) and R$ 400 million for other actions. A portion of the FNDCT resources is destined for research institutes, another comprises a loan aimed at companies that wish to carry out research.

The Justice and Public Security team intends to complement the budget of the Federal Police, Federal Highway Police and the National Penitentiary Fund (Fupen).

In the area of ​​Social Development, the team estimates that R$ 2 billion will be needed to maintain the Gas Aid. The working group also considers BRL 500 million for the Food Acquisition Program (PAA) and BRL 2,6 billion for the Unified Social Assistance System (Suas).

In the area of ​​Regional Development, the team diagnosed that there is a deficit of R$ 2 billion for next year, today only R$ 3 billion would be foreseen in the budget for 2023.

For the Environment, the Bolsonaro government proposed the lowest budget for the sector, BRL 1,6 billion in 2022 and for 2023 it is around BRL 1,7 billion. The transition team has not yet indicated when it will be necessary to allocate the budget if the PEC is approved, but lists four main fronts that need to be restructured: environmental inspection, control of fires, reduction of deforestation and recomposition of the agency's staff.

 

economy growth

Leda Paulani explains that fiscalists (economists who support the Spending Ceiling) consider that the excess demand resulting from public investment and the supply of credit for popular consumption generates inflationary pressure. Leda Paulani considers these precepts a mistake because inflation only happens if there is an exhausted supply structure above its capacity of use, and the situation in Brazil today is the opposite there is a brutal idle capacity of productive plants, industries closing.

Leda Paulani points out that today's recent inflation in Brazil is due to a demand shock and a lack of supply. Competition for the little that is produced generates inflation. Current inflation comes from cost pressure, demand pressure and not supply pressure. The economist describes that due to the pandemic, global production chains were interrupted because of the health crisis, so a production hiatus was established. The Law of Supply and Demand clearly explains the phenomenon: if the production of a product A depends on a product B that was not produced, the price rises. “The competition for the little that is produced makes the price go up. Public investment, on the other hand, makes the GDP rise”, says Leda Paulani.

 

Social-developmentalist economic policy and the new development

The Transition PEC is the beginning of the institutional implementation strategy of a social-developmentalist economic policy whose central objective is economic development with the combination of the productive structure, distributive policy and social inclusion.

The foundations of this economic policy are the creation of jobs, increased income, the reduction of informality, the reduction of poverty and inequalities, providing economic growth, increasing revenues by improving public accounts and the macroeconomic foundations, opening spaces for the expansion of investment, social spending and the salaried consumer market, strategic elements that boosted the economic cycle and give it its more redistributive character.

Contrary to what critics of this policy intend, this growth is not driven exclusively by consumption. Social-developmentalist policies highlight the resumption of a vigorous public investment program for the modernization and expansion of transport, social and urban logistics infrastructure, following the example of the Growth Acceleration Plan (PAC), which also encourages private investment which can be stimulated through credits, concessions, public-private partnerships and guarantees.

Ricardo Bielschowsky considers that there are several theoretical currents of developmentalism. Among these is the one that Bielschowsky researches and which he qualifies as the theory of social-developmentalism. the State plans it”.

According to Ricardo Bielschowsky, it is necessary for Brazil to increase its low productive diversity and specialization in primary goods, reduce concentrated property, raise the average income, which today is close to subsistence (low income economy). The UFRJ professor states that in the social-developmentalist economic policy, the State and public policy are directed towards universal and free access to public goods and services financed with contributions or progressive taxes.

The economist explains that providing access to quality education and public health means greater availability of money and, consequently, mass popular family private consumption – social justice. The economist also points out that the financial market should be an ally for the development of productive forces, that is, for the formation of new capital and income distribution.

Ricardo Bielschowsky states that the foundations of social-developmentalist economic policy are; (a) social – universalize and institutionalize the rights of citizenship, carry out social inclusion (education, health, housing, sanitation, etc.) of the less favored sections of the population and improve income distribution; (b) productive – through investment, mass production and consumption, economic and social infrastructure, activities that are intensive in natural resources with sustainability, linking industry, education, science, technology and innovation; (c) macroeconomic – practicing macroeconomics and financing for development, guaranteeing the objectives of macroeconomic stability and growth with income redistribution.

 

new development theory

The theory of new development has been formulated for over 20 years by some economists such as Luiz Carlos Bresser-Pereira, José Luiz Oreiro, Luiz Fernando de Paula, André Nassiff. For this group of economists, the reindustrialization of Brazil is crucial for economic development.

For Luiz Carlos Bresser-Pereira, there are two fundamental macroeconomic policies to trigger reindustrialization and development in Brazil: (i) increase in public investment – ​​the government can set an investment target to be achieved in relation to GDP, for example in hypothesis, stipulate that the goal is to reach an investment of around 25% of the GDP; (b) a stable and competitive equilibrium exchange rate target for the industry – the government must dedicate a concerted effort to maintain the exchange rate at R$5,10, R$5,20 per dollar.

The economist also believes that Brazil, as an exporting country, must have two equilibrium exchange rates. A general equilibrium rate that is determined by the commodities that is the one that the market naturally determines is satisfactory for commodity exports to make a profit, “not the abusive profit of now, but with profit”.

Another exchange rate that Bresser calls is the industrial equilibrium exchange rate, which is the competitive exchange rate for industrial companies and for this it is necessary to have permanent attention to neutralize the exchange rate depreciation that can be obtained through taxation of the rate. export of commodities or through customs tariffs.

According to Luiz Carlos Bresser-Perreira, the reindustrialization of Brazil requires an industrial policy combined with macroeconomic frameworks of a competitive exchange rate, low interest rates and that, in addition to the profit from commodities, the estimated industrial profit is also contemplated.

The position of this group of economists is that the country should not try to grow with foreign savings, which means that it should not grow with current account deficits that are financed by multinationals or by international financial institutions.

For the New Development Theory, capital is made at home, with a surplus of equity in the current account, attracting international capital investment to increase productivity, multinational companies to transfer new technologies to Brazil, new products and new markets.

Investment in capital goods, research, knowledge, science and technology is decisive to inaugurate the trajectory of the new development of Brazil, to recompose the inducing and coordinating role of the State and state-owned companies so that they fulfill, with agility and dynamism, their role in the process of economic development and social, productive and environmental progress in the country. Reposition Brazil in the global value chains with high added value products, energy and digital transition as well as the economic integration of South America, Latin America and the Caribbean with the developing countries of the Global South in a sovereign program of the region of respect for self-determination of peoples, but of mutual, shared and peaceful growth with the USA and the European Union.

The great institutional challenge for the elected government, in addition to constituting a majority for the approval of the Transition PEC, is the formation of a solid parliamentary majority as a base of support for the government that begins on January 1st. The Lula Government starts with the base of 11 parties that elected it (PT, B's PC, PV, Solidarity, PSOL, Rede, PSB, Agir, Forward and Pros) and is tasked with further expanding congressional support for the MDB with Democrats (part had already supported it in the 2nd round), with formal support from the parties or independent parliamentarians of the union Brazil, PP, PSD and even PSDB, Republicans and even from the PL that assume the commitment with the governmental program elected by the sovereignty of the popular vote, with the Democratic State of Law and with the social justice of the Brazilian people. It is also imperative for the government to competently communicate the economic policy implemented by the Lula Government to maintain and expand social support, that is, from the majority of the Brazilian population to the government program and the reconstruction of Brazil.

* Marlon Luiz de Souza, journalist, is a master's student in World Political Economy at UFABC.

 

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