Finance Minister Fernando Haddad and Planning Minister Simone Tebet during a press conference on the new fiscal rule| Photo: José Cruz/Agência Brasil

The new fiscal framework, a set of rules aimed at limiting government spending and preventing the growth of public debt, should not control the public debt in the coming years, evaluates the Millennium Institute, a study center that promotes liberal values. The organization points out that:

(1) The Lula government assumes the commitment to present positive primary results only from the third year of the mandate. Traditionally, the last year of office tends to be marked by loosening of fiscal rules, such as, for example, the PEC Kamikaze, enacted in June. In this way, the entity considers that it is very likely that the country will present a surplus in just one of the four years of the Lula government.

(2) The target for 2023 is quite different from the expectation of the primary result. In March, the Ministry of Planning estimated the result as a deficit of R$107.6 billion, equivalent to 1% of GDP. The lower limit of the target is now 0.75%. The government stated that the government intends to reduce this deficit by increasing tax revenues, without detailing which sectors and which taxes it intends to increase.

(3) The fiscal target is well below the result necessary for the fundamental stabilization of public debt growth in relation to GDP – which puts pressure on interest rates and compromises investment and growth. In the latest Fiscal Monitoring Report (RAF), the Independent Fiscal Institution (IFI) estimates that, in the medium term, the primary surplus needed to stabilize public debt is 1.5% of GDP, a value that is not included in any year of the four term. “This fact conveys a lot of concern about the trajectory of the public debt and should result in the maintenance and increase of pressure on interest rates”, highlights the Millenium Institute.