By WESLLEY CANTELMO*
The logic of fiscal restriction imposed on Brazil has already had several institutional forms, which reached its peak as the “Spending Cap”, but has its contemporary form in the so-called “Fiscal Framework”
1.
I have been concerned about the direction and even the parameters of the contemporary economic debate. Especially because, due to a long movement that I will not address here, it is distancing itself from what is fundamental to it, which is its political dimension, thus becoming a hollow debate, full of untruths and optical illusions.
Between December 19 and 20, 2024, the National Congress approved the package of fiscal measures to contain spending – PLP 2010/2024 and PEC 45/2024 – proposed by President Lula's government. The cuts were necessary as a result of the restrictions imposed by the Fiscal Framework, also proposed by the Lula government, in 2023.
Since the framework stipulates a general ceiling for expenditure growth and there are expenditures that have so far grown at a rate higher than that stipulated by the ceiling, one thing leads to another, that is, the rule for adjusting such expenditures would need to be adjusted for the Fiscal Framework to continue to be valid. We will return to these details, but first, let us talk a little about country conceptions.
I ask you: what is your aspiration for the country? Can you still think about it or have you been taken over by the contemporary shadow of immediacy? Or have you already naturalized a pessimistic view of the world and are waiting for death to come, while trying to satisfy small desires? If you are this type of person, that's fine. But know that we are in different positions. I am one of the fighters. Even in a thankless fight, with a huge chance of losing, I do not accept reality as it is and I am interested in changing the rules of the game, turning the tables, rather than playing it. Is it innocence, idealism on my part? Maybe. Understanding reality is always a dangerous and unfinished task. I must be missing something. But what is more comfortable, questioning or accepting the decisions of others (even if they are from the same political field)? To think.
So, before any analysis, I will come clean and say that my aspiration for the country is defined by a socialist developmental utopia. Utopia, I always like to say, in the sense of that which will still be, according to our contemporary efforts to build it. Thinking utopically is the practice of those who have courage. Therefore, what I want is a developed country, within the parameters permitted by the planet and in accordance with what human creativity, which is not to be confused with Western creativity, is capable of producing.
And development is a fight, as Celso Furtado already pointed out in the 1970s, whether due to natural limits – which increasingly reveal themselves and make explicit the irrationality of the current order – or due to war between nations in the heavy global geopolitics, or even due to the class struggle, which has taken on dramatic contours in contemporary capitalism, anchored in the digital world and in the generation of cognitive dissonances.
2.
So, let's go: in today's Brazil, are we working towards development? I will be categorical, subject to scrutiny: no!
This “no” has many layers and is much more of a resulting vector, which means that there are movements in favor and movements against, of course. But the result, if I am right, is worrying.
Let us now analyze the vectors. Has anyone ever seen a country overcome its condition of dependent underdevelopment and even achieve some degree of de facto sovereignty without the mobilization of state instruments? Especially those related to the fiscal impulse to generate investments responsible for structural breaks in the productive dynamics?
As far as I know, there is none. The dynamics of power in Brazil largely converge precisely on the institutional result of control over the public budget, which stipulates various privileges for the groups in power and imposes profound restrictions on the large mass of the remaining population. An institutional structure prevails in Brazil that prevents the State from being mobilized towards a development strategy.
We are operating on a huge autopilot of managing the structures of exploitation and inequality. This is the issue of our time, and it is up to those who are dissatisfied to define strategies, have the courage and be willing to overcome it.
The logic of fiscal restrictions imposed on Brazil has taken many institutional forms, reaching its peak with the “Spending Cap” of Michel Temer and Jair Bolsonaro, but it has its contemporary form in the so-called “Fiscal Framework”. Some might say that these are imposed by the current situation, that the correlation of forces does not allow us to go any further. That’s fine, but I’ll present some points for reflection.
In the contemporary context, we have a national schizophrenia, with a Constitution of the Republic aimed at the universalization of a State of social rights that coexists with mechanisms of eternal postponement of this universalization, such as the Fiscal Framework itself. The conception of a State with rigid fiscal controls is, in essence, a vector of social regression and maintenance of status quo of social dynamics. Therefore, I cannot, perhaps due to incapacity, see how the passive acceptance or defense (as I have seen from the current government) of strict fiscal control leads us to accumulate forces in the direction of some progress.
On the contrary, in addition to creating concrete obstacles, it misinforms and impoverishes public debate. Someone might also say: “it’s not about accumulating strength at this moment, but about surviving.” I would respond: look, there is no more desperate condition for a being, when all that’s left is survival. The condition of survival combines the fact of seeking ways to stay alive and the faith that something unexpected will happen. I am once again emphatic that we are not in that condition yet. But we can get there if we do not understand with great concern the objective results of strict fiscal control.
We have now reached a crossroads that was foreseen since the Fiscal Framework was proposed and that explains the risk we are facing. As we knew, the Fiscal Framework, for what it is, is incompatible with the minimum social floors provided for in the Constitution and with historical public policies that ensured an effective mechanism for distributing income to the population. On the one hand, the policy of real appreciation of the minimum wage linked to the growth of the product was, during the first two governments of Lula and also Dilma, an important mechanism for generating economic growth with income distribution.[I][ii], including and obviously, with important tax returns.
3.
In fact, this gives us an opportunity to comment on the rhetorical game surrounding the minimum wage increase policy. What we always read or hear in the main news outlets that cover the economic agenda is about the fiscal impact of the minimum wage increase policy. Of course, there is an immediate pressure effect on the budget, especially because the adjustments of various social income transfer programs are influenced by the value of the minimum wage.
The main one is precisely the Continuous Benefit Payment (BPC), which is, until now, tied to the value of the minimum wage. However, what is not discussed publicly with the same avidity, despite vast scientific evidence, are the distributive effects, the dynamism in the labor market and the boosts in economic growth that also result in greater revenue, therefore, in better conditions to sustain the policy of raising the minimum wage itself, as well as other important policies for a national development strategy, in addition to being a safety cushion for the poor.
Furthermore, it is important to emphasize that the opposite is also true. That is, greater timidity in the policy of increasing the minimum wage, even while maintaining the logic of real adjustments, has the potential effect of slowing down the growth dynamics, with a consequent slowing down of the revenue dynamics. Just look at the analyses of what would have happened if the rule now proposed within the scope of the spending cuts package had been adopted, for example, since 2003.[iii]
The same logic of “adjustments” was applied in other areas, such as in the case of Fundeb, which will now have a percentage of its allocation included in the minimum amounts invested in education, as provided for in the Constitution – the percentage will be 10%, but it is important to remember that the government proposed 20%. These Fundeb resources should be directed to complement the implementation of full-time schools. Great, but shouldn’t this be part of our effort to generate a revolution in our public education?
These are clear signs of the mistake of having the so-called “balance of public accounts” at the center of the economic debate, with the subordination of the entire economic development strategy. It is a logical inversion that blocks any structural change in the country. So, with the approval of the fiscal package of spending cuts, we have indeed taken steps backwards in our civilizing challenge.
Before any opportunist can say, “so you defend unbridled spending,” I would like to point out that there are indeed limits to fiscal impulses, especially when there is no robust planning structure and when this impulse is directed towards measures with low multiplier effects and that are not capable of leaving structural legacies in the medium and long term. This is definitely not the case with the policy of increasing the minimum wage, which affects what we have most valuable, which are people and their capacity for survival, consumption and creation.
This is no longer the case, for example, with the large volume of parliamentary amendments, which consume a large part of the amount earmarked for public investments. These expenses, in turn, are spread throughout the country, without any planning, and with limited scale effects. Therefore, the quality of spending matters a lot when we are dealing with fiscal stimulus. And here we have yet another defeat, with the amendments continuing to be free from blockages.
The economy is active and buoyant, with the beginning of a resumption of investment, which is also leading to interesting results in the labor market, with historic lows in unemployment (despite the high level of informality and more precarious employment) and a trend towards an increase in average income. However, this is the beginning of a possible new investment cycle, which has not yet returned to the best moments of the Lula 1 and 2 and Dilma Rousseff periods. The quality of investment seems to be improving, with the beginning of a strong resumption of the BNDES' role as a financier of an attempt to implement a new round of industrialization in line with the needs of ecological transition – although, in the short term, it is still highly dependent on imported technologies.
4.
There is an attempt, quite present in the government's rhetoric, to elevate Brazil as the main leader of an economy focused on ecological transition. In practice, however, this initiative, which is summarized internally in the Ecological Transition Plan, has been limited to microeconomic measures to facilitate the formation of markets and the provision of new lines of credit and fundraising on the international market to finance innovative projects, which until now have been largely concentrated in the clean energy production sector.
A reasonable start, but one that has clear limitations and some risks, especially placing Brazil as a mere supplier of commodities clean energy in the division of labor in a world that is racing against the climate crisis.
There is much talk in the traditional media and even in the government (when it defends itself from the left's claims about the harmful effects of the Fiscal Framework) about the importance of fiscal stimulus for these results. This is a truth that needs to be qualified. The resumption of important social policies of income transfer, as I pointed out above, generates multiplier effects and helps a lot in stimulating the economy.
However, it is worth remembering that public investment, which in 2023 stood at 2,63% of GDP, only slightly exceeds the effects of depreciation and is well below the levels observed in the Lula 1 and 2 and Dilma governments. Of course, compared to Michel Temer and Jair Bolsonaro, it seems like heaven. But I do not believe that this should be our parameter. In 2024, public investment has shown an increase, but the effects of the Fiscal Framework tend to cool this movement. We return to the question: is it possible to promote a development process without public investment?
Let's now look at the other side of the coin, which is the implicit policy involved in the Fiscal Framework. Before we reflect on this, it is important to remember that it was the government itself that proposed the Fiscal Framework, as a toned-down continuation of Michel Temer and Jair Bolsonaro's Spending Cap.
The political argument, at the time of negotiating an extraordinary fiscal package, based on the fiction represented by the 2023 budget approved by the previous government, was to provide some security to agents who did not support Jair Bolsonaro, but who were suspicious of the government, that the Lula 3 cycle would not mean a total rupture with the liberal institutional reforms made since the coup against Dilma Rousseff in 2016.
The spending cap was already a work of fiction at that time, with Jair Bolsonaro's government having poured a lot of money into the economy, without any criteria, in an attempt to win the 2022 presidential election. At that time, as expected, there was no outcry from market operators. These people – and, yes, they are people – have a side. A very pragmatic side, which boils down to making a lot of money with the least possible risk.
In fact, I consider the denunciations we make on the left against the speculative and manipulative logic of the direction of the Brazilian economy, which market agents operate, to be futile. What we have to do is find practical ways to overcome them. It is not easy. However, constantly trying to signal that there will be no change in the logic of how the State is run only reinforces the position of power of market agents, who come to understand that the sky is the limit and that, therefore, they will always find ways to have their interests met, even if gradually.
And I am not saying this in relation to the moment of financial stress, with pressure on the exchange rate, while the package of cuts was being processed in Congress. At this moment, when the cow has already gone to the ditch, it is best to remain silent. But I am referring to the constant signals from the economic team since 2023 and even Fernando Haddad's fateful interview with Mônica Bergamo.
What remains for those who want to make some kind of change in this country in the direction of development is a reduction in the room for maneuver, dissatisfaction among some organized groups, with the possibility of even splits among left-wing activists, who are more or less supportive of the government. And, fundamentally, there remains the potential for the people to feel unwell, as a result of their difficult lives, which will gradually turn into dissatisfaction with the government and support for the bizarre theses of a very well-organized far right.
Overall, it seems to me that we have blocked the possibilities in the search for development and, instead of accumulating, we have lost the strength to face the next rounds of this eternal struggle. And this is not a reflection on electoral possibilities, but on the concrete lives of the people, today and in the coming years.
*Wesley Cantelmo holds a PhD in economics from the Federal University of Minas Gerais (UFMG).
Notes
[I] https://www.scielo.br/j/neco/a/5CnzZzN5jMVJbJ4DSpjnszg/?lang=pt
[ii] https://www.scielo.br/j/ecos/a/HscfdQqCQ6t4vjXCkF69tnc/
[iii]https://madeusp.com.br/2024/12/consideracoes-sobre-a-proposta-de-mudanca-da-politica-de-valorizacao-do-salario-minimo/
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