Impasse over fiscal target puts government in the “worst of all worlds”, says former Treasury secretary

Former Secretary of the National Treasury, Jeferson Bittencourt, stated that the impasse over meeting the target of zero fiscal deficit for 2024 placed the Lula government “in the worst of all worlds” and made “clear the little intention to contain expenses”. Bittencourt, who is an economist at Asa Investment, said that the discussion about the target, at this time, also undermined the processing of proposals for fundraising in Congress. On Monday (27), President Luiz Inácio Lula da Silva (PT) stated that the market is “greedy” and that it will be difficult to meet the fiscal target established by the Minister of Finance, Fernando Haddad.

“This discussion has now turned out to be the worst of all worlds. [para o governo], because there was clear little intention to contain expenses and it also undermined the processing of measures to increase revenue that are in transit in Congress. When the government gives this signal, before finishing the votes, it itself causes the texts to become dehydrated”, said the economist in an interview with Estadão released this Wednesday (1st). Bittencourt was secretary of the National Treasury during the Bolsonaro government. In 2021, he left the government along with other assistants to the then Economy Minister, Paulo Guedes, amid dissatisfaction over negotiations to change the spending ceiling.

Lula’s statement impacted the results of the financial market and among parliamentarians. Haddad tried to circumvent the crisis and denied the existence of the president’s “disengagement” with public accounts. However, the minister avoided saying that next year’s fiscal target will be maintained. For the former secretary, Haddad is “doubling down” by focusing on revenue, without taking a position on a possible change in the fiscal target. Bittencourt pointed out that the “problem is that this mechanism, of seeking all adjustments on the revenue side, has already been tested since that first announcement, in January”.

“And we are having difficulties in this attempt [de focar na receita]. Both the measures that were approved, they show their ability to deliver results, and the measures still under debate manage to be approved with the revenue expectation that the government originally presented”, he added. The former secretary considers that the government wants to avoid contingency at all costs, that is, the preventive blocking of expenses in 2024.

The initiative could hinder investments in an election year and make it impossible to open a second supplementary credit provided for in the framework, of around R$15 billion. “This credit has a peculiarity: it permanently increases the spending limit. So, the government would not give up this R$15 billion only in 2024. It would have a lower limit forever”, he highlighted.

Bittencourt also said that there is a way to help reverse the repercussions caused by Lula’s speech. “It would be for the government to give up that supplementary credit that is foreseen by the framework to be made in May, based on the expectation of revenue growth in 2024 compared to 2023. This credit [diferentemente do crédito baseado no diferencial da inflação, que será aberto em janeiro] It has not yet been incorporated into the Budget, and is estimated to cost between R$15 billion and R$16 billion. This would have been a good signal, to show that the government is willing to make efforts on the expenditure side as well,” he said.