Can an investment be considered an expense? – 01/23/2023 – Why? Economês in good Portuguese

When asked about the issue of public accounts in a recent interview with GloboNews, President Lula defended that expenditures on health, education and social programs should be seen as “investments”, not “expenses”. It is as if, by a simple change in nomenclature, they ceased to put pressure on the Budget. In the past, former President Bolsonaro used the same argument to defend increases in military spending.

This is really just a rhetorical device. Investment or not, there is an expense to be incurred, which involves a costly choice on the side of public accounts.

In economics, investment denotes actions that generate costs in the present, but that bring benefits in the future. A classic case is that of investment in physical capital, in which companies buy machinery and build new factories, among other reasons, aiming to increase their productive capacity and profits in the future. Or that of families when buying new homes, which allow them to enjoy them for many years.

More recently, economists have come to interpret education as an investment —the so-called investment in human capital. After all, families and the government itself spend resources on children and young people who will become more productive citizens in the future. This does not only involve the expenditure of monetary resources, but also the dedication of children’s and parents’ time to study.

A similar argument can be made for health expenses. In fact, it’s hard to think of any activity that doesn’t have any future impact. In this sense, almost any public expenditure could fall into the investment box.

From the public accounts perspective, the investment also brings a benefit. With greater capacity or more productive workers, it is possible to generate growth and therefore collect more taxes in the future. All of this logically depends on the quality of spending. Low-quality education, for example, adds little in terms of human capital.

But we cannot deny that there is an expense in the present, which starts to compete with others in the Budget. To build more schools, roads or hospitals, it is necessary to spend public resources, which involves making public choices. After all, tax money, which largely finances the public machine, is not infinite.

President Lula’s argument is important to clarify priorities in the Budget. However, calling an expense an investment does not make it go away. There will be no more money left over for other things as a result, nor will there be less need for government debt – which entails interest expenses, putting pressure on the Budget in the future.

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