Lula asks Haddad to deepen the proposal for a fiscal rule, and PT presses for spending – 03/19/2023 – Market

President Luiz Inácio Lula da Silva (PT) asked the Minister of Finance, Fernando Haddad, to expand conversations with the political world and with economists, in addition to making new calculations on the proposed new fiscal rule, which will replace the spending.

The orientation was given during a meeting on Friday (17th), when Haddad presented the text to Lula. Ministers Simone Tebet (Planning and Budget), Rui Costa (Casa Civil) and Esther Dweck (Management and Innovation in Public Services) participated in the meeting, as well as vice president Geraldo Alckmin (PSB), minister of Industry and Commerce.

According to members of the government, Lula recommended that the National Treasury carry out calculations on the impact of one of the points in the proposal, in addition to asking for additional details and simulations.

Still according to these reports, the president asked the minister to talk to more economists and listen to the presidents of the Senate, Rodrigo Pacheco (PSD-MG), and the president of the Chamber, Arthur Lira (PP-AL).

In the opinion of a participant at the meeting on Friday, the proposal was considered good and subject to approval, only depending on adjustments. For another participant, the model presented is simple, without inventing the wheel.

New meetings are scheduled for this Monday (20) to address the issue. The discussion takes place while the PT is pressing for the new fiscal framework not to imply drastic cuts in areas considered sensitive by party leaders.

The PT president, Gleisi Hoffmann (PR), published a message on social networks on Saturday (18) in which she argues that it is necessary to increase public investments, which means that the proposal for a new fiscal framework should be flexible in relation to certain expenses.

“If it is true that the economy will grow less this year, according to indicators released by the government, then we need to increase public investment and not hold back any social investment. At times like this, fiscal policy has to be countercyclical, expansionist,” he said.

There is also pressure from ministers from the wing considered more political in the government so that the new fiscal rule is not so strict as to bar investments in public works, considered important for the performance of the Lula administration.

The proposal drawn up by Haddad has been kept under wraps by the government to prevent it from being exposed to criticism.

Some signs already given by the economic team, however, are that the Treasury wants to maintain some control over spending growth, even if this is more flexible than the current spending ceiling — a rule that limits the advance of spending to inflation and , in the PT’s evaluation, limits expenses with works and social policies.

Furthermore, as shown by Sheet, Lula fears being accused of electoral fraud after running a campaign permeated by promises to put the poor in the budget and put an end to the current ceiling.

Throughout the electoral period, the then-candidate repeated that spending on education and health did not mean costs, but rather investments, when he criticized the obstacles imposed by the fiscal rule on these areas.

Last week, Haddad spoke with the president of the Chamber and spoke about general lines of the fiscal framework

At the meeting, Arthur Lira told the Finance Minister that he should talk to party leaders in Congress before forwarding the text.

The tendency is for the measure to undergo changes by parliamentarians. Talking to them in advance, therefore, is a way to prevent the proposal from being distorted.

Before presenting it to Lula, Haddad discussed the idea with economists outside the market. He did not address the measurement parameters, but only the heart of the matter.

On Monday, the new fiscal rule should be discussed within the scope of the JEO (Budget Execution Board), formed by Haddad, Tebet, Costa and Dweck.

The JEO meeting was convened to validate the first evaluation report of the Lula administration’s Budget, which needs to be delivered on Tuesday (22).

In the first release of economic projections, last Friday (17), the government reported predicting more timid economic growth in 2023. The data, however, is more optimistic than what the market expected.

The Ministry of Finance calculates a growth of 1.61% in GDP (Gross Domestic Product) this year, lower than the previous estimate, made during the administration of Jair Bolsonaro (PL), which predicted a rise of 2.1%.

In the Central Bank’s Focus Bulletin, the expectation of market analysts has even improved in recent weeks, but it is still for an advance of 0.89% this year.