By ISABELA CALLEGARI*
In the absence of real power imposed by a foreign currency, austerity is an ideological constraint, which recreates non-existent power and internalizes it through fiscal legislation.
This article was started when the government's fiscal adjustment package was first announced on November 29. Given the broad and harmful nature of the proposed measures, it is understood that they should be studied and debated calmly. However, the urgency with which they were voted on was such that I am sending these lines for publication after their approval, on Christmas Eve.
In left-wing activist groups, it was clear that workers did not have time to familiarize themselves with the bills and understand what was happening, with many simply relying on the statements by government representatives, which they trust. With the exception of a few people, most people thought it impossible that the Lula government was proposing the precariousness of part of the country's most vulnerable population. I therefore point out, from the outset, the first antidemocratic and antipopular characteristic of this situation, the regime of urgency and the public denial by members of the government of factual aspects of what the government itself presented.
The package, presented by the Ministry of Finance and materialized in two Bills, authored by the government leader in the Chamber, José Guimarães, PL 4.614/24 and PLP 210/24, later inserted in PEC 45/24, outlined a desolate and politically unjustifiable scenario for the PT government, due to its impact on workers and, especially, on people with disabilities and elderly people in situations of poverty, and caregivers, mostly women.
Demagogy aside, in practice, figures such as Michelle Bolsonaro, Bia Kicis, Nikolas Ferreia, Damares Alves, Sergio Moro, and others on the right, responded to pressure from their electoral bases and mobilized to mitigate and block the adjustment, despite being representatives of fractions of the bourgeoisie and usual defenders of fiscal austerity.
Thus, it is clear that the pressure for adjustment did not come from Congress, on the contrary. In fact, the situation took on surreal contours when the government hastily released more than R$8 billion additional funds in Parliamentary Amendments – reaching a record figure of R$40 billion and adding to the scandal of the capture of public resources and implicit parliamentarism – so that Congress could approve the package of precariousness for the working class. Therefore, to accurately evaluate the government's performance, we have to examine the measures it proposed and their concrete impact on the population, in addition to asking ourselves what the so-called “market” really is, and what pressure it is effectively capable of exerting, in light of macroeconomic theory and the understanding of the monetary system.
Firstly, it can be seen in the table below, published by the Ministry of Finance, that the idea was to save R$17,2 billion in 2025 and R$239,8 billion by 2030 by cutting social spending that is extremely relevant to the majority of the population (salary bonus, Fundeb, Unlinking of Federal Revenues, minimum wage, Bolsa Família, BPC and updating of registration by biometrics), not to mention the attempted cuts to the Constitutional Fund of the Federal District (FCDF) – which was dropped in the final wording of the PEC –, the retention of resources for cultural projects under the Aldir Blanc Law, and those destined for the provision and creation of public positions.
About the attack and its main consequences
The extension of the Union Revenue Disconnection (DRU) will continue to suppress what would be allocated to social assistance, social security, education and health, to meet financial expenses, as well as the limitation of federal resources to Fundeb leaves the education budget more dependent on states and municipalities, which themselves suffer from serious real fiscal restrictions.
In turn, the two largest Brazilian social programs, BPC and Bolsa Família, together serve approximately 56 million beneficiaries, while 724 thousand people are entitled to the salary bonus and the average income of the entire population is affected by the appreciation of the minimum wage, since social programs, pensions and salaries are linked to it. Estimates indicate that if the proposed rule for the real appreciation of the minimum wage, of a maximum of 2,5%, had been in force since 2003, the minimum wage would be at least 25% lower today. That is, the equivalent of less than R$1.000.
Many have argued that the announced package would be nothing more than a “fine-tooth comb”. It is worth noting that this would be very serious in itself when done without actively seeking out beneficiaries, constituting a policy typical of right-wing governments that, using the argument of technical adequacy, in practice cut the benefits of the most vulnerable people, incapable of adapting to the demands. I remember my personal experience in 2017, when I was working in a job and saw precisely people who were illiterate, who did not have access to the internet, or who had serious health problems, having their benefits cut, by the “fine-tooth comb” of the Bolsa Família program promoted by the Temer government, at the same time that social workers were scarce in the area, also due to spending cuts.
In other words, any requirement to re-register in order to receive benefits, without monitoring and accountability from the government's social welfare system, results in loss of income and rights for those who live in the remotest parts of the country, in rural areas, on indigenous lands, have limited access to news, low connectivity, mobility problems, are hospitalized, sick, have a disability or are illiterate. And this brutal attack is celebrated as if it were promoting fiscal justice and morality against fraudsters. Bolsa Família, in turn, will also be subjected to a fine-tooth comb made by a percentage limit of families consisting of only one person (single-person families) per municipality.
Now, let's look at what many have denied: the proposed changes in criteria, beyond this seemingly technical cut. Starting with the salary bonus. The annual benefit, currently received by formal workers who earn up to two times the minimum wage (R$2.640), will have its income limit frozen at the current value, until it reaches 1,5 times the minimum wage, and the increase in the minimum wage has also been restricted. In other words, the government will save money by the fact that people who currently receive the bonus will no longer receive it in the coming years.
The presentation of the Ministry of Finance justifies the measure by claiming that formal workers who earn up to two minimum wages are being privileged, since their income is equivalent to 85% of the average salary of Brazilian workers and that 60% of formal workers today are entitled to this benefit. Therefore, instead of recognizing that the average salary of the general population is very low, the beneficiaries were seen by the government as the problem to be corrected.
Next, the point considered the most serious, that of the changes in the criteria for receiving the Continuous Benefit Payment (BPC). Initially, as stated in the Ministry's presentation and in the bills presented, there was an unprecedented proposal to include the income of a “non-cohabiting spouse or partner” in the calculation of per capita income. Not to mention the uncertainty of how this category would be defined, it is simply absurd, in a context of alarming male violence, daily femicides and paternal abandonment on the rise, to suggest including the income of someone who does not live in the same house and who may be an absent father who does not pay child support, or a violent man from whom the woman is fleeing, in the calculation of income so that she can access the benefit.
Furthermore, the initial proposal also provided for the income of relatives who do not live under the same roof to be counted if they provided financial assistance to the applicant for the benefit, without themselves having an income below the minimum wage. Such proposals represented an affront to the safety and dignity of women and people living in poverty, and fortunately were defeated in Congress.
There was also an attempt to change the definition of a person with a disability, established by the Statute of Persons with Disabilities as “someone who has a long-term physical, mental, intellectual or sensory impairment, which, in interaction with one or more barriers, may obstruct their full and effective participation in society on an equal basis with others” so that the benefit would only cover people with severe disabilities, defined as those “unable to live independently and work”. This ableist offensive was denounced by the large mobilization of the community of people with disabilities and, to be fair, by the strong action of parliamentarians linked to this base, with emphasis on Damares Alves (Republicans) and Mara Gabrilli (PSD), in internal and public discussions.
Finally, the bill submitted by the government provided for the revision of Law No. 8.742, so that it would no longer be possible to accumulate benefits in the same family and to deduct amounts for medicines, treatments and special food, something that was achieved during the pandemic, under the government of Jair Bolsonaro, expressed in Law No. 13.982, of 2020. If approved in its initial form, the bill would reduce by half the income of a family composed of two elderly people or one elderly person and one person with a disability, who only had the benefits as income. This point was severely criticized and changed in the final draft. Even so, the income of all cohabitants, such as siblings and stepchildren, was included, changing the current definition and, therefore, making access to the benefit more difficult.
Access to the BPC was made so difficult that even after all the changes, the PSOL bench advised a vote against it, and parliamentarians from the PT itself, such as Erika Kokay, voted against it, admitting that the bill harms people with disabilities and restricts the appreciation of the minimum wage. Even so, the PEC has now been approved and it is regrettable that days before the same left-wing parliamentarians were claiming that it was “fake news” that the bill affected vulnerable people and harmed the minimum wage. It was thanks to these public demonstrations that the base of workers did not mobilize and chose to defend the government, so that the PEC, although with improvements, was approved.
Other prominent figures on the left, such as Lindbergh Farias, Randolfe Rodrigues, Jandira Feghali and Maria do Rosário voted in favor of the bill, or abstained from voting and did not comment publicly, like Erika Hilton. In this way, the government gave the right an opportunity to argue that it is unacceptable for spending cuts to become cuts in people, as Sergio Moro (União) said, or that the adjustment should come from those who can contribute more, not from the most vulnerable part of society, as Rogério Marinho (PL) said. After the demonstrations, PT leader Jacques Wagner said that the government will veto the modification of the criteria for people with disabilities and the cancellation of the benefit due to outdated registration.
People with disabilities and women caregivers
People with disabilities, as well as mothers of people with disabilities, tend to be organized in associations that seek legal action or donations to access medicines, therapies, surgeries and basic rights, and councilors and parliamentarians, as well as charitable groups on the right, tend to be closer to this community than the left. This is an observable fact. Therefore, the left not only promotes an inhumane attack but also adopts a politically irrational line.
Instead of getting closer to this community, it distances itself even further from it, paradoxically, shortly after approving the National Care Project. There is no point in establishing broad guidelines, theoretically based on anti-ableism and feminism, if in the concrete fight for the budget, for access to goods and services, and in the face of different abilities, people are left to their own devices, depending on lawyers and donations.
Because they are subject to unpaid care work, women have less free time and therefore less access to the job market and lower income. They also have more difficulty contributing to social security, so their retirement, in low-income situations, is usually the BPC.
Furthermore, as the main compulsory caregivers in society, when permanent care is needed, women end up living off someone else's BPC. In other words, we are not talking about just one person in poverty, which would be terrible enough, but rather two poor people who are unable to work, one because she needs care and the other because she is providing care. Therefore, the income criterion is indifferent to the different physical capacities and inequalities in time available for paid work.
In cases of children with intellectual disabilities, rare diseases or severe disabilities, the few studies we have point to a frightening statistic of up to 95% of parental abandonment, making the sexist and ableist biases in the criteria for granting BPC evident (Callegari, 2021). In addition, these families incur extra expenses on medicines, treatments, therapies, transportation and hygiene items. Due to these characteristics, there are several Bills, presented in recent years, that, contrary to the fiscal adjustment, seek to facilitate access to BPC for people with disabilities.
People with disabilities and women caregivers, who connect through associations and support groups, will not forget that their few rights were threatened under a left-wing government, and it was the actions of Congress that mitigated this threat.
On injustices within the fiscal adjustment
While the cuts for the poorest will be immediate, the positive measures announced, such as income tax exemption for those earning up to R$5 and the surtax for those earning over R$50, are not enough to achieve the necessary progressiveness in income, and will still need to be approved by Congress, so that, if approved, they will only come into effect in 2026. In other words, the negotiating tactic seems to have been to release amendments so that Congress would approve a package against the poorest, and the right would emerge as defenders of the population, instead of releasing amendments to promote structural changes at the top, which would at least make some sense in the long term.
At the same time, other numbers are so scandalous that they can no longer be hidden. As several analysts have been pointing out, we have approximately R$1,7 trillion in annual losses in tax benefits, tax evasion and debt interest, in addition to approximately R$615 billion distributed to shareholders, through profits and dividends, in a completely exempt manner, while workers pay up to 27,5% in tax on their salaries. It could be argued that the cuts to the people are a demand from Congress to approve structural reforms, but as we have seen, Congress did not demand the cuts, nor did it commit to the reforms.
As for interest on public debt, we have the frightening figure of approximately R$50 billion paid to holders of public debt bonds for every 1% increase in the Selic rate, and all it takes is a stroke of the pen, behind closed doors, by the Monetary Policy Committee (Copom), which was not elected by anyone. Even during this offensive against the people, the Committee decided to raise the interest rate by one more point, which is equivalent to spending more than the entire savings that the government intended with the adjustment in 2025. However, the interest account is not included in the fiscal target, which is ideologically restricted to non-financial spending (primary spending).
Now if it is true that the president of the Central Bank, Roberto Campos Neto, is a Bolsonaro supporter and has explicit conflicts of interest, acting in its own interest, it is also true that the government has not made any move to review the autonomy of the Central Bank or change its presidency. Likewise, it has not sought to change the inflation target, which in the first PT governments was significantly less stringent, and which is determined by the National Monetary Council (CMN) – composed of Fernando Haddad, Simone Tebet and Campos Neto.
There was much less effort to question the inflation targeting system itself, which is an orthodox instrument designed to subordinate fiscal policy and social spending, rather than to control inflation. Finally, the nomination of Gabriel Galípolo to take over as president of the Central Bank should not give rise to optimism, given that he differed very little from Campos Neto in the internal decisions that promoted the constant increase in the Selic rate. Meanwhile, National Confederation of Industry (CNI) e até members of the financial sector and analysts unsuspected of heterodoxy found the increase in the rate unjustified and disproportionate.
Austerity as a lie in itself
So, in short, the initiative for fiscal adjustment did not come from Congress. On the contrary, a large part of it mobilized to water down the proposal or simply voted against it. Secondly, even though the original proposal, of extreme changes to benefits, was not approved, the government has already lost a lot by 2026 as far as the community of people who receive BPC and salary bonuses is concerned, especially among mothers, people with disabilities and the elderly.
Finally, sections of the bourgeoisie and the financial sector itself criticized the voracity of monetary policy, which has been supported by Gabriel Galípolo, appointed by the government to the Central Bank. Therefore, it appears that the government does everything to please a very specific section of the bourgeoisie, made up of a few large financial players, called the Market. But what is the real power of these players in terms of manipulating the exchange rate and determining public spending?
Answering this question seems to be essential if we want to escape the permanent counterfactual trap of never knowing what could have been done on the left, since we assume that the Market allows nothing. What we do know is that governing by granting the financial sector, the media, the military, the churches and agribusiness everything they want was not able to guarantee structural changes in return, and in the end, it resulted in a coup – based, by the way, on the fallacy of fiscal responsibility.
It also follows from a logical reasoning that if the government cannot do anything, because everything belongs to the Market, when a right-wing government is in power, it will also be just a hostage, and therefore, left and right would be indifferent. Furthermore, if a left-wing government governs objectively to the right, and the population tends to adhere to the hegemonic neoliberal ideology, we cannot be a viable option. If this tactic and strategy are leading us to permanent defeat, it seems essential to govern seeking structural changes, without granting financial actors more power than they actually have, even within a reformist scenario. To this end, it is essential to evaluate the current pressure on the exchange rate and the pressure for fiscal adjustment, given the functioning of the monetary and financial system.
It is common for situations of financial coordination for exchange rate manipulation, especially in Latin America, to evoke the feeling that something uncontrollable and unsustainable is happening, due to our historical experiences with inflationary spirals, exchange rate crises and foreign debt crises. Although the media and the orthodox economic narrative continue to use this feeling, it is not based on the reality of a country without external debt, with monetary sovereignty (i.e., not dollarized) and with a flexible exchange rate.
Even though the major players in the financial market (the Market) can coordinate a manipulation to momentarily intensify the devaluation – which the Real shares with other currencies due to geopolitical factors – this manipulation can only be sustained for a short period of time, since these players lose money by maintaining this position.
Domestic debt, in turn, is a central issue, the nature and dynamics of which must be understood by social movements and the population, so that we do not remain eternal prisoners of discourses that mystify economic reality. Domestic debt securities, in countries that issue their own currency, are not only a counterpart to this creation of currency, but also, and fundamentally, instruments for managing liquidity (the amount of currency in the economy).
In other words, debt securities are instruments of both fiscal and monetary policy. Therefore, they are different from foreign debt securities in several ways. On the one hand, because they cannot simply be audited, questioned and canceled, since they are instruments that affect the entire economy. On the other hand, domestic debt is not something that must be paid off or that runs the risk of not being paid, since it is denominated in the currency that the government itself issues.
Serrano and Pimentel (2017) show that sovereign currency countries are always able to roll over their internal debt and finance themselves, given that even if primary bond market agents (in Brazil, currently, 12 dealers) do not want to buy long-term bonds at the interest rate offered, the interbank market, where the Central Bank operates daily, will always operate with short-term public debt bonds, as financial institutions will not lose money by leaving their bank reserves idle from one day to the next.
Thus, what happens is that if the government does not sell its long-term bonds at the desired interest rate, the Treasury still spends its public money normally, increasing the money supply in the economy. This increase in money results in an increase in bank reserves, which will be exchanged for short-term bonds in the interbank market. The Central Bank, in turn, is obliged to intervene in the interbank market, in the face of the increase or decrease in reserves, buying and selling bonds, in order to reach the Selic target.
And to carry out this monetary policy action, it must have a sufficient quantity of Treasury bonds in its portfolio. Thus, the Treasury always issues bonds to the Central Bank and the Central Bank always provides indirect financing to the Treasury, even if direct financing is prohibited by law, as is the case in Brazil.
If the Central Bank did not operate in this way or if financial agents actually refused to issue debt securities, including short-term ones, what would happen is that the Selic target would not be achieved and monetary policy would not be managed. This would contradict the market's own narrative, which prioritizes monetary management and the importance of the Selic. The fact is that in the contemporary monetary system, in countries with sovereign currencies, domestic debt is an instrument of macroeconomic policy, and does not have the same characteristics as what we call debt in other contexts.
A domestic debt security represents a debt in the sense that it is a commitment by the government to the person who holds it, because in order to manage the amount of money in the economy, the government exchanged the security for currency and promised to return that currency, plus interest, under the conditions specified in the security. However, unlike what is commonly understood as debt and what other debts are, this does not mean that the private sector lent to the government and that without new loans, the government will be left without its own currency and may go bankrupt. Likewise, it does not mean that it is the private sector that determines the interest rate.
Therefore, it is economically impossible for government debt to become unpayable or an unsafe asset, since the debt would only stop being paid if it were politically decided to do so, never due to a lack of resources. In practice, market agents, the same ones who say that the debt is unsustainable, know this, and will always maintain investments in government bonds, which are profitable and have zero risk, and are preferable to keeping money idle.
The pressure they exert on the media and, eventually, on the long-term bond market, is entirely political and aims to increase interest rates and cut social spending to make the working class vulnerable, not to improve the government's abstract financial indicators, so that the debt becomes “safe”. They also know that the government does not need to collect taxes to pay the debt, unless the fiscal rule itself establishes this.
Based on this understanding, the Modern Monetary Theory shows that the fact that the government has no financial limits on the creation of currency and its own financing does not mean that it can issue currency without real consequences for the economy. On the contrary, the real economy should be the basis for public spending planning, since the impact of spending matters in terms of its effects on society and macroeconomic indicators, and not on the government's own accounting results.
The interest on bonds, in turn, creates a real problem of income concentration, as we have seen. However, since it is not possible to simply audit and cancel the domestic debt, we have to think of other ways of managing the amount of money in the economy that are not so costly. Most likely, this will involve greater nationalization of the banking sector and other rules for the interbank market.
Therefore, in the absence of real power imposed by a foreign currency, austerity is an ideological constraint that recreates non-existent power and internalizes it through fiscal legislation. The role of fiscal rules is to mimic the economic constraints of dollarized or foreign-indebted countries, determined by multilateral organizations such as the IMF, for example. In this sense, the great power of the market was to impose the idea of spending caps, which did not exist in the first PT governments, and which was accepted by the New Fiscal Framework.
Yes, financial agents and the bourgeoisie as a whole hold great political power to direct the media, pressure and overthrow governments in various ways, even when economic policy is in their favor. However, ideology works to create illusions in spaces devoid of power. Thus, breaking with the permanent blackmail of austerity requires creating popular awareness about the monetary and financial system. The power that the Market does not have is realized by the fear of confronting it.
*Isabela Callegari She has a master's degree in economic theory from Unicamp..
References
CALLEGARI, Isabella. Tax Justice and Gender: the case of mothers of children with Congenital Zika Virus Syndrome. Gender and Trade Network, December 2021.
DALTO, FAS Government always creates money when it spends, there is no alternative financing. Institute of Functional Finance for Development (IFFD). Policy Note No. 3, October 2021.
IFFD – Institute of Functional Finance for Development. In Defense of a Tax Planning Regime. Public Note No. 1. March 13, 2023.
SERRANO, F. and PIMENTEL, K. Has “the money run out”? Financing of public expenditure and interest rates in a sovereign currency country. Contemporary Economy Magazine (REC), vol. 21, no. 2, 2017, p. 1-29.
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