Haddad: no country punishes for non-compliance with fiscal target – 04/24/2023 – Market

Finance Minister Fernando Haddad said this Monday (24) that no country criminalizes authorities for failing to meet the fiscal target, in defense of a device proposed in the new fiscal framework to replace the spending ceiling.

The holder of the economic portfolio also considered that the contingency of resources –mechanism currently used with the aim of ensuring budgetary balance– proved to be ineffective for the management of public accounts.

“I don’t know of any country that criminalises. [tem] of having a robust rule, we are the first ones who are proposing a clear rule. What’s the use of making a hard rule, like the spending cap, and then approving a constitutional amendment breaking the ceiling? It’s a make-believe. It’s better to have a correct rule, a sustainable rule, a rule enforceable by society,” he said.

Haddad, however, stated that the National Congress has its autonomy and that maintaining the punishment would not make much difference.

According to the proposal delivered by the government of Luiz Inácio Lula da Silva (PT) to the National Congress last Tuesday (18), non-compliance with the target for the result of public accounts will not constitute a violation of the law.

The text only provides for the President of the Republic to provide explanations to Congress if the objective is not met, also detailing what measures will be adopted to correct the deviation.

The logic is similar to the device of the current inflation targeting regime, in which the Central Bank is not held responsible if it does not reach the target determined by the CMN (National Monetary Council), but the president of the monetary authority needs to write a letter addressed to the minister of Farm justifying itself for what happened.

In the new fiscal framework, the government also decided to make the need to block resources during the year to meet the fiscal surplus target more flexible, so that the limitation of resources becomes optional.

Today, the legislation determines that the government needs to prepare bimonthly reports evaluating revenues and expenses, predicting whether the numbers are compatible with the objective to be pursued in the year. If the data show potential frustration, the numbers should be contingency.

For Haddad, the bimonthly blocking of funds is not the most appropriate model for budget management. In the text of the fiscal framework, the government proposes changing the frequency of checking the numbers, with the revenue and expenditure assessment report becoming quarterly (at the end of March, June and September).

“Preventive blocking every two months works poorly, it’s better to have a continuous flow that you monitor expenses than to have a tourniquet that is another make-believe, you end up harming the good management of public resources instead of making a consistent macroeconomic management . What’s continuous is better for budget management purposes,” he said.

As shown to Sheetthe view of government members is that the need to block resources will be present anyway because, if the result is unbalanced, the penalty will come in the form of a smaller expansion of expenses in the following year.

In addition, forecasting unbalanced data could damage the government’s reputation – which would force the Executive to take the necessary adjustment measures.

The minister also defended this Monday that the “black box of tax breaks” needs to end and once again promised to act to curb abusive practices in tax benefits.

“Why is it that when you give up R$ 10 billion in revenue, nobody finds out about it? Everything is hidden in the black box of tax waivers. This needs to end”, he said.

According to Haddad, there are more than R$ 100 billion lost in “drains that opened up to drain public resources”. “It gives almost R$ 600 billion that the Union loses on behalf of half a dozen who lobby Congress and the Judiciary, illegitimately.”