Randolfe wants to guarantee 0.6% higher spending in 2024 – 11/20/2023 – Market

The government leader in Congress, Randolfe Rodrigues (no party-AP), suggested an amendment to the PLDO (Budget Guidelines Bill) of 2024 so that any contingencies to be made during the year to meet the fiscal target preserve growth of at least 0.6% of expenses.

The amendment meets what Minister Fernando Haddad (Finance) defends, who seeks to limit the resource contingency at the beginning of next year after pressure from members of the government’s political wing.

The movement is observed even after the government decided to maintain the goal of zeroing the deficit in public accounts in 2024, which would require efforts in the opposite direction – that is, more tightening of funds – in the case of insufficient revenues.

Rodrigues states in the arguments for his amendment that the new fiscal framework has among its objectives to mitigate economic cycles through a countercyclical mechanism of real expenditure growth.

“The intention of the federal Executive Branch with the proposal, improved and validated by the National Congress, was to establish a floor and a ceiling for the real growth of expenses, in order to avoid excessive volatility in fiscal policy, contributing to bringing greater stability in relation to economic cycles”, states Rodrigues in the document.

“If limiting commitment and financial transactions were allowed to be carried out indiscriminately, there would be a risk that, in times of revenue frustration, the minimum real growth of primary expenditure of 0.6% set at 0.6% would not be achieved. in LC nº 200/2023 [lei do novo arcabouço fiscal]which would call into question the countercyclical purpose”, he says.

In an interview on Friday (17), Minister Fernando Haddad (Finance) said that, in the ministry’s view, the contingency can only reach R$22 billion or R$23 billion.

The calculation is based on the joint interpretation of two rules: the one that stops the contingency at up to 25% of discretionary expenses (which include costs and investments and can be subject to blocking) and the one that regulates the real expansion of the expense limit, with a variation between 0.6% and 2.5% per year above inflation.

While the first rule could suggest a contingency of up to R$53 billion, which scared the political wing, the Treasury’s interpretation of the second rule limits the risk to less than half the initial value. According to Haddad, in any situation, the need to contingency resources cannot override the guarantee of a minimum expansion of 0.6% above inflation.

The Treasury’s understanding is part of a government effort to create a legal argument to limit the lock on 2024 spending and stop the pressure for a change in the target. The measure has been seen by technicians as a maneuver, a label rejected by the minister’s allies.

In a report to clients, XP Investimentos said that the interpretation “weakens the credibility of the tax framework”.

Felipe Salto, partner and chief economist at Warren Rena, warns that limiting the contingency to a reduced value could, in practice, mean an even larger primary deficit in 2024, with consequences for the country’s debt.

“It turns out that everyone would incorporate a systematically higher expense into the estimates, motivated by the limitation on cutting discretionary expenses”, he says.

Today, the market already has a more pessimistic expectation than the government for the performance of public accounts in 2024. While Haddad promises a zero deficit, agents project a deficit equivalent to 0.8% of GDP (Gross Domestic Product), a lot in addition to the negative 0.25% tolerated by the new framework rule, which provides for an upward or downward margin.