New fiscal rule will allow zero primary deficit in 2024, defends government – 03/10/2023 – Market

The fiscal rule designed by the Ministry of Finance to replace the spending ceiling will allow the goal of zeroing the primary deficit to be reached next year, they said to the Sheet government members involved in the debate.

Despite saying that the focus of the changes is the rebalancing of public accounts in the long term, the government sees conditions for the purpose to be achieved as early as next year under the rules of the new framework.

The current management makes the exception that there are variables that can still disrupt the plan, but works with this objective so that the level of public debt is stabilized in the first place. In the longer term, it would start to go down.

The main objective of the rule, according to the government, is not only to recover fiscal sustainability (to be measured above all by the level of public debt) but also to allow adequate financing of public policies – in addition to resuming the credibility of macroeconomic policy, with predictability and transparency , they say.

The Ministry of Finance works with the scenario of eliminating the deficit even with the level of expenses contracted this year. In view of this, members of the government mention that the search for a result in blue will also need to consider the revenue side.

This year, Minister Fernando Haddad (Finance) has already presented a fiscal package to Congress to reduce the 2023 gap from a deficit of 2.16% of GDP to up to 1%. Among the measures, largely focused on revenues, are the re-encumbrance of fuel and the change of rules in the Carf (Administrative Council of Tax Appeals).

One of the most sensitive points in the discussion is convincing the political class, since the PT itself has been critical of proposals for greater fiscal restrictions.

President Luiz Inácio Lula da Silva (PT) even reiterated this Friday (10th) that it is necessary to use public resources. “We can’t keep thinking that the best thing in this country is saving money. No, good money is money turned into work, improving the quality of life of the people, health, education. Above all, employment, which is what gives dignity to the people Brazilian,” he said.

To get around the problem, members of the government see it as essential to convince Lula that the new set of fiscal rules is positive. Once this goal is achieved, any internal disagreements and also with party members tend to be contained.

In the process of convincing the representative, they must mention the positive reaction to the proposal displayed by those who had access to it.

Minister Simone Tebet (Planning) is one of those people. This week, she stated that the rule will please everyone, including the market, and also serve President Lula by guaranteeing resources for investments, which decreased over the historical series until reaching the lowest level in 15 years in 2022 (0.5 % of GDP) – after reaching 1.3% of GDP (Gross Domestic Product) in 2014.

This Friday, Haddad said he will present the new fiscal framework proposal to the president next week. The minister also said that it is “simple”, but that it is necessary to “be cautious”. He even added that he doesn’t intend to advance some points because the subject “stirs up moods” and that he doesn’t want to “harm anyone”.

“Last week, I said that I would conclude the framework in terms of Finance. This week, I will conclude it in terms of the economic area and next week I will present it to the President of the Republic. I already said that at the ministerial meeting, which I I’m ready to [apresentar a proposta]I have already spoken with several interlocutors, who are key people, so that we have confidence in the design that is being presented”, he said.

“And we will present it as soon as the president opens up next week’s agenda for him. It is he who will give the final word. We in the economic area already have an understanding about this”, he added.

The finance minister also stated that he avoids giving details about the model that will replace the spending cap so as not to impact the market, saying that this news stirs “moods” and makes people earn and lose money. The rule has been treated with secrecy within the folder.

“It messes with moods, makes people earn money and others lose. I’m not wanting to harm anyone. That’s why the zeal with information has to be taken mainly from the economic authority. If I’m not zealous about it, I’ll be harming someone unnecessarily,” he said.

“The rule is simple, but it has its own dynamics and will undergo scrutiny by Congress. We have to be careful and try to respect the procedure so as not to harm anyone,” he added.

The new fiscal framework to be proposed by the government is one of the most awaited topics by the market, as it directly interferes with expectations surrounding the trajectory of public accounts over the next few years.