Paulo Bijos: Opening fiscal space is the heart of the work – 09/18/2023 – Market

The Ministry of Planning prepares a list of public policies that will be screened by a technical group focused on reviewing spending, whose central objective is to reduce expenses to open up fiscal space in the Federal Budget.

A target already publicly identified is the social security benefits of the INSS (National Social Security Institute). The other items in the government’s sights have been kept confidential until now — a measure of prudence in the face of a thorny issue that is likely to face resistance.

“I will not be able to say yet what the policies [que integrarão a lista]but these are consensuses from the past”, he tells Sheet the Federal Budget Secretary, Paulo Bijos. According to him, there is already “a lot of stock” of evaluations carried out in recent years, which can contribute to the review process.

Last week, Minister Simone Tebet (Planning and Budget) created a working group within the department to promote the spending review. It is a distinct task from evaluation, which aims to diagnose the positive or insufficient results of a given policy.

“Assessment is the activity that feeds into the spending review process. The distinctive element is that the spending review aims to identify potential savings with the specific objective of opening up fiscal space. Opening up fiscal space is the heart of the spending review. spent”, explains Bijos.

The creation of the group is the government’s first concrete gesture towards greater emphasis on reducing public spending, a demand made repeatedly by members of the financial market and members of the top leadership of the National Congress.

The panel will be made up of representatives from the Executive Secretariat, the Public Policy Monitoring and Evaluation Secretariat and the Federal Budget Secretariat, all linked to the MPO. Technicians from other departments will also be called when the review process involves any of their programs.

“No public policy would be discussed outside the respective ministries”, says Bijos. The group can still consult outside experts.

According to the secretary, the complete list of the first policies to be reviewed should be released by the end of the year. The formal deadline, however, is April 15, 2024, when the government will send the PLDO (Budget Guidelines Bill) for 2025.

The annex of fiscal targets should bring, starting next year, detailed estimates of potential savings with public policy assessments. In practice, this means that the government will need to signal that it intends to reduce spending by reviewing expenditure A, B or C.

The requirement was introduced by an amendment to the LRF (Fiscal Responsibility Law), approved together with the new tax framework.

Bijos classifies the change as a “connection of cables” between evaluation and preparation of the Budget. It is about identifying potential savings that can benefit other government priorities. The key word, according to him, is “relocation”.

“Demand [por gastos] has it all the time. How can these demands be met if there is no fiscal space within an expense limit? We also want to be better equipped to provide this type of response and support this process”, says the secretary.

“It’s not simply denying credit. Eventually, if this is a priority and deserves to be included in the Budget, which is already at its ceiling limit, we will make room by revisiting these expenses, having these studies.”

Economy projections will also be made for a medium-term horizon. This way, the manager will know the consequences, positive and negative, of a decision made in the present moment.

For Bijos, despite being politically sensitive, interest in the spending review debate should gain ground in the coming years, especially with the existence of a fiscal rule that imposes a limit on expenses. “I see this as one of the non-partisan agendas, just as the vote on the new fiscal framework was,” he says.

“We want to open the range of options, fuel the public debate, see what is viable and what is not viable”, he states.

The raw material for carrying out this work is abundant. The CMAP (Public Policy Monitoring and Evaluation Council), a government body focused on evaluation, has already diagnosed 60 policies that cost, in total, R$1 trillion to the public coffers. The body issued 147 recommendations for changes, but most of the studies continue to sleep in the drawers of ministries and Congress, without having any effect.

One of the reports focuses on the salary bonus, a type of 14th salary paid to formal workers who earn up to two minimum wages (currently R$2,604). Created in 1970, the allowance is criticized for the lack of clarity in its objectives and the lack of focus.

The Dilma Rousseff (PT) government managed to implement changes that helped reduce its cost, but it continued to exist. During the Jair Bolsonaro (PL) administration, the then minister Paulo Guedes (Economy) tried to further restrict the scope of the policy, without success. Afterwards, the former president himself vetoed further attacks. “I can’t take from the poor to give to the very poor,” said Bolsonaro in 2020.

A Sheet, Bijos reiterated several times that he does not comment on any specific policy to be analyzed by the federal spending review working group. He just says that the three types of expenses are candidates to enter the technicians’ sights: tax (which generates tax exemptions), mandatory (which includes social benefits and civil servants’ salaries) and discretionary (costing and investments).

In next year’s Budget proposal, the government has already included savings of R$12.5 billion with the review of INSS benefits — a value considered high by technicians from the government itself and outside experts.

The secretary, however, defends the initiative. “There is a TCU ruling [Tribunal de Contas da União] which points out that at least 11% of social security benefits contain some type of error or fraud”, he states. “The efforts of the Ministry of Social Development with regard to Bolsa Família show that government action in relation to the registration review can generate results positive taxes, for the good of public accounts”, he adds.

Bijos also minimizes the distrust of the market and members of the government’s political wing with the objective of zero deficit in 2024 — one of the main slogans of Minister Fernando Haddad (Finance).

For the secretary, it is natural that doubts arise regarding a goal that he classifies as “challenging”.

As shown by Sheet, the Planning Minister even argued that a deficit target of 0.5% of GDP (Gross Domestic Product) for 2024 would be more credible. Some members of the government and congressmen consider that Haddad was hasty and could have set this objective for 2025, freeing the government from unnecessary strain with spending cuts.

Bijos considers that there is no “absolute truth” on this topic, but defends the decision taken by the economic team.

“The government’s commitment from the beginning, when the goal of [déficit] zero, was firm in the sense that this was the decision and now we will comply with it. Within the scope of budget programming, this proved to be feasible”, he states.

For the Budget Secretary, the government’s strategy of focusing on increasing revenue instead of emphasizing spending reduction means that revenue measures, which depend on approval by the Legislature, become “the object of increased attention”.

Bijos sees the debate as legitimate and considers that the discussion has not been exhausted, admitting that the proposals may undergo changes during processing in the National Congress.

“I have always considered that Congress is naturally a co-protagonist in preparing the Budget”, he says.