Making Health and Education more flexible could free up R$131 billion – 04/06/2024 – Market

The flexibility of the Health and Education floors could free up up to R$131 billion for other costs and investments until 2033, shows a report released by the National Treasury.

The projection does not in itself mean a political recommendation, but the exercise carried out by the body’s technicians raises the debate about the need to review these expenses to guarantee the sustainability of the new fiscal framework in the medium term.

Without changes, the space for other expenses would be completely consumed by the end of this decade. In practice, the rule created by Minister Fernando Haddad (Finance) would be doomed to overflow.

The need to harmonize these links with the new fiscal framework was addressed for the first time in April 2023 by Haddad in an interview with Sheet. Since then, however, he has delegated responsibility to the Ministry of Planning and Budget, in charge of the spending review agenda.

The topic is politically delicate for the Luiz Inácio Lula da Silva (PT) government, especially given the left’s historic defense of more funds for both areas. Haddad was also Minister of Education in the Lula and Dilma Rousseff (PT) governments.

In 2024, constitutional minimums were once again linked to tax collection. The Health floor is equivalent to 15% of the RCL (net current revenue), while the education floor represents 18% of the RLI (net tax revenue).

The fiscal framework itself, however, says that the expense limit grows at a rate equivalent to 70% of the real increase in revenue. In other words, the rule guarantees a structurally faster expansion of revenue.

If the revenue that supports the Health and Education minimums grows faster than the limit under which they will be accommodated, there is a natural tendency for other expenses to be compressed below the new ceiling.

In the current scenario, which considers the revenue measures already approved by the Lula government, the space for discretionary expenses with funding and investments will be completely compressed from 2032 onwards.

The difficulties, however, should manifest themselves even earlier, with the gradual strangulation of public policies, as occurred under the spending cap established by the Michel Temer (MDB) government.

This happens because even within discretionary expenses there are some “rigid” expenses, that is, they do not have a formal mandatory label, but are stamped, and the government needs to guarantee their execution. This category includes the Health and Education floors and parliamentary amendments.

There is a second complication that increases this tendency to flatten other expenses.

Haddad and his team are betting on a series of revenue measures to maintain a trajectory of continuous improvement in public accounts until 2026. If they are successful in this strategy, the balance between revenues and expenses will improve, but the floors will be calculated based on revenue even greater, increasing the pressure on the spending limit.

Treasury calls this alternative framework the “reference scenario.” In it, the space for discretionary expenses is exhausted as early as 2030, with a gradual reduction before that.

It is in this context that the agency’s technicians formulate options for the Health and Education floors, stipulating the guaranteed value for 2024 as a starting point. The values ​​obtained reflect the additional space for other discretionary expenses, which do not include “rigid” expenses.

A first exercise simulates the correction of the minimums using the same rule in the framework (inflation plus a real increase between 0.6% and 2.5%). The difference would not be so large in the first few years, but the gap would gradually become greater, reaching R$62 billion in 2033 (calculated at today’s values).

The second scenario foresees the correction of the floors by the growth of real GDP (Gross Domestic Product) per capita. The result would be similar, with increasing relief until reaching R$69 billion in 2033.

In both cases, the values ​​would still be insufficient to eliminate the risk of the framework bursting in the fiscal scenario desired by Haddad, with an improvement in results until 2026.

The third scenario would be the only one with the potential to maintain the sustainability of the rule, according to Treasury simulations. In it, the floors would follow population growth, in order to keep per capita spending constant.

The additional space for funding and investment expenses would be felt as early as 2026, advancing consistently until reaching R$131 billion in 2033.

Ligia Bahia, a professor at UFRJ (Federal University of Rio de Janeiro), a specialist in public health, recognizes that the allocation of resources hampers the Budget, but emphasizes that this pattern has been consolidated in a country in which health and education deficits are ” abyssal.”

“In developed countries it is not necessary to link, but there is a broad consensus on increasing public spending on health. However, health spending grows at rates always above population parameters and GDP performance. Decoupling from revenues to link to GDP would be a strategy that goes against international recommendations, including preparation for health emergencies”, he says.

According to her, the Covid-19 pandemic contributed to reinforcing that the parameters for projecting health expenses are not linear and depend on changes in the demographic and epidemiological profile, the speed of technological innovations in health and health inequities.

“Expenses must necessarily be countercyclical. In times of economic recession, adequate public spending on health prevents individuals and families from falling into debt and being unable to get back on their feet due to expenses for sick people”, states Bahia.

“It’s not about defending the link, but rather finding ways that ensure an impact on improving health and living conditions”, he says.