How is Lula’s budget – 03/25/2023 – Vinicius Torres Freire

Luiz Inácio Lula da Silva ordered the Ministry of Finance to redo its spending and debt plan because he wants to increase spending on health and education. Maybe he asked for other changes.

The Treasury does not provide information on the “new fiscal framework”, the new method of containing spending and debt. In that regard, what little leaks out of other ministries is either confusing, irrelevant, or wrong.

The subject is the subject of great and angry controversy. The discussion would be better if we had an idea of ​​how the government accounts are doing.

In the years of Lula 2, federal government revenue averaged 19.2% of GDP. That is, of all the income (or production) of the economy in a year, the federal government would have that slice to spend.

It was the period with the best pace of economic growth and the highest collection in the last four decades. Without creating new taxes, it is difficult for federal revenue to go beyond the Lula 2 average.

Currently, disposable income is 18.9% of GDP. It’s not much smaller. The relevant difference is that, in the years of Lula 2, average spending was much lower, at 17.3% of GDP. That is, after paying all the bills, there was still the equivalent of 1.9% per year left over, on average (“to pay interest”). This is what is called a primary surplus. All these accounts do not include public debt interest expenses.

It is estimated that, at the end of this year, revenue will have been 17.8% of GDP. It should decline because growth will be weaker and because there will be no exceptional revenue due to the price of commodities, in particular oil. The expense should be 18.8%. That is, there will be a primary deficit equivalent to 1% of GDP. It is more or less R$ 100 billion.

What expenses have increased or will increase, from Lula 2 to the first year of Lula 3? Spending on Social Security (INSS) increased from 6.6% to 8.2% of GDP, an increase of 1.6% of GDP. Under Lula 2, 0.35% of GDP was spent on Bolsa Família. This year, it should reach 1.65% of GDP. Another 1.3% of GDP.

The second largest expenditure of the federal government, wages, social security and benefits for civil servants, decreased, in particular because of Jair Bolsonaro’s tightening: it went from 4.5% to 3.6% of GDP. In the following years, there should be a small increase, due to readjustments and hiring.

It is possible to increase revenue. Minister Fernando Haddad (Finance) implies that he would like the government to have at least the equivalent of Bolsonaro’s last year’s revenue: 18.9% of GDP. Need more tax.

With this income and no increase in spending, the government is at zero to zero, with no deficit or surplus. But: 1) the government needs to run a surplus in order to contain the public debt; 2) Lula wants to increase spending.

Haddad started talking about “recomposition” of health and education expenses. The changes built into Michel Temer’s ceiling actually reduced these expenses. Suppose that health and education spending is pushed back to past peaks. That is, the highest figure for any year since 2003. This would imply an increase in expenditure of 0.6% of GDP.

Lula also wants to increase public investment, now around 0.5% of GDP, a pittance and a serious problem. Also relevant, it wants to increase the value of the minimum wage in addition to inflation, which raises Social Security spending.

In summary, Lula needs to increase revenue by 1% of GDP just to balance the accounts, but he needs more, as he wants more expenses and needs some surplus.

Where to cut expenses? Social security, civil servants, social assistance, health and education account for 86% of expenses.

An obvious alternative is to increase the size of the economy, of GDP, to accelerate growth: there would be more money without increasing spending relative to GDP.

This is the summary of the opera.

PRESENT LINK: Did you like this text? Subscriber can release five free hits of any link per day. Just click the blue F below.