Review of government spending would save up to R$700 billion in ten years

Under distrust from the market, the Minister of Finance, Fernando Haddad, pursues the goal of zeroing the primary deficit in 2024 through actions aimed at increasing the Union’s revenue. Several analysts, however, consider the achievement of the objective to be hardly credible and defend initiatives that adjust public accounts on the expenditure side as a way of facilitating the mission.

Economists heard by People’s Gazette give some suggestions that, in the long term, could result in savings for the public coffers of up to R$700 billion in ten years.

“The first measure that would need to be taken is to stop increasing spending as the government is doing”, says Tiago Sbardelotto, from XP Investimentos. He cites as an example the policy of real appreciation of the minimum wage, which should increase expenses by around R$16 billion next year and by R$32 billion in 2025. “The pressure is getting greater and greater”, he explains .

Alessandra Ribeiro, from Tendências Consultoria, recalls that the measure has a knock-on effect on social security benefits, which are calculated based on the minimum wage. “Linking inflation and growth from two years earlier has a very large impact on mandatory spending”, says the economist.

Sanctioned by President Luiz Inácio Lula da Silva (PT) at the end of August, the law that provides for the annual adjustment takes into account inflation measured by the National Consumer Price Index (INPC) of the previous 12 months plus the real growth rate of the Gross Domestic Product (GDP) of the second year prior to the current year.

In the same vein, both analysts also defend a review of the rule for spending floors on health and education, set at 15% of net current revenue (RCL) and 18% of net tax revenue (RLI), respectively.

“The big problem is that we no longer have fat to burn in discretionary expenses and cutting mandatory expenses seems really difficult”, explains Alessandra. “But you can reduce the rate of discharge,” she says. She emphasizes that the most important thing is not the amount spent in these areas, but the quality of the expenditure.

Sbardelotto highlights that the minimum rule for health and education, which came back into force with the new fiscal framework, should increase spending precisely due to the Treasury’s search for more sources of revenue. “If revenue as a whole grows more than 2.5%, which is the limit imposed by the new fiscal rule, these expenses will put pressure on others, reducing the space for discretionary spending within the new ceiling”, he explains.

For him, a viable idea would be to use the limits of the tax regime to limit the adjustment in expenses with both areas – that is, establish a 70% increase in revenue, with minimum limits of 0.6% and a maximum of 2.0%. 5% real growth.

“It is also important to re-discuss these floors structurally, because we have a population that is aging and, therefore, will demand more spending on health and probably less on education”, he assesses. “Managers should be given more freedom to allocate values ​​according to the needs of the population. But for now, in the short term, I think it’s worth just re-discussing these minimums.”

Suggestions include reviewing social programs and ending salary bonuses

A proposal defended by several economists to reduce the federal government’s annual bill more immediately is to unify the registers of beneficiaries of social policies, which currently have a lot of overlap.

“Check who receives two, three, four or even five different benefits and change the eligibility criteria, putting an end to the possibility of accumulation”, suggests economist Gabriel Leal de Barros, former director of the Independent Fiscal Institution (IFI) and now partner from Ryo Asset.

“Today, with decentralized bases, there is a huge inefficiency in these expenses”, he says. “Unfortunately, the left prohibits this debate. If you propose a review, they curse you, they say you don’t like poor people,” she laments.

The integration and redesign of programs such as Bolsa Família, Farmácia Popular, family salary, maternity salary, closed season insurance, prisoner assistance and Continuous Payment Benefit (BPC) could yield tax savings of R$ 185.4 billion in ten years, calculates Barros. Between 2024 and 2026 alone, the gain would be R$49.1 billion.

“We could have a more effective social protection network and, with that, you would even save on administrative resources”, agrees Sbardelotto, from XP.

Another measure that analysts suggest is the extinction or at least a redesign of the salary bonus, a type of fourteenth salary for workers with a formal contract for at least five years and who receive up to two minimum wages.

“There are countless studies that show that this is an expensive and inefficient policy, poorly focused and that it contributes little in terms of financial support to the poorest workers”, says Barros. “It’s not a social policy, but a job market policy.” Furthermore, he highlights, there is a considerable overlap between the program and the family salary.

Today the annual cost of the salary bonus is just over R$20 billion, but it should reach R$28 billion in 2026, and R$37 billion in 2033, if the current rules are maintained. The Ryo Asset economist considers three possible options.

The first is the immediate end of the program, which would provide a fiscal gain of R$313.8 billion over ten years. The second, the gradual extinction in four years, whose savings would be R$272.5 billion by 2033. The last would be to restrict the benefit only to workers who earn up to the minimum wage from 2024 onwards, which would already provide fiscal space extra R$255.8 billion in a decade.

“This is a debate that has been going on for a long time, but there is a huge political resistance to doing so. It has already been established that the salary bonus is not efficient either in reducing unemployment or poverty”, says Sbardelotto.

For Bruno Carazza, associate professor at Fundação Dom Cabral, the reassessment of expenses could be even broader. “The review should cover everything from income transfer initiatives to spending on parliamentary amendments, which are distributed to states and municipalities without effective monitoring of the results of public policies,” he says.

An agenda that advanced under the administrations of Michel Temer (MDB) and Jair Bolsonaro (PL), but which appears to have slowed down under the current government, is the digitalization of public services, which, in addition to making processes more agile and efficient, would also save resources.

“Just by improving public procurement via the system, there would be a net gain of R$5 billion to R$7 billion”, says Barros. “Not to mention the gain in productivity, which would also eliminate the need for so many public examinations.”

In the long term, administrative reform and a new pension reform

In terms of spending cuts in the long term, economist Raul Velloso, a specialist in public accounts, defends the need for a new pension reform, today the Union’s main mandatory expense. To give you an idea, the 2024 budget piece foresees the need for R$895.7 billion to pay social security benefits.

Its proposal basically consists of establishing a cut-off date for new entrants to the social security system to start contributing to a capitalization scheme. Thus, the tendency is for Social Security to balance naturally, with the progressive extinction of benefits for current contributors due to death. “The government would have an escape valve for political pressures that increase discretionary expenses, which will always exist”, says Velloso.

An administrative reform, as the president of the Chamber of Deputies, Arthur Lira (PP-AL), has defended, could mean savings of around R$200 billion in ten years. The gains, however, would also be felt mainly in the long term, since changes in civil service careers could only apply to new employees, highlights Alessandra, from Tendências.

But the Minister of Management and Innovation in Public Services, Esther Dweck, is against the reduction in the number of employees. “The previous government was a little proud of the drop in the number of civil servants. In our view, this drop was beyond what would be reasonable,” she said, in July, when announcing the opening of 2,480 effective vacancies for direct administration bodies.

Just as necessary at the federal level would be an administrative reform in all states and municipalities, which today require billions of dollars in additional transfers each year from the Union. “Both the reform and digitalization would make subnational governments much more efficient than this madness. by putting your hand in the federal government’s pocket through resource transfers, it would naturally reduce”, says Barros.

In September, the Ministry of Planning and Budget announced the creation of the Federal Expenditure Review Working Group. According to an ordinance published in the Official Gazette of the Union, the commission has, among its responsibilities, to identify public policies or programs that will be subject to review.

From there, indicate options for saving resources and reallocation, considering dimensions such as economy, efficiency and cost-effectiveness, and promote integration between different bodies and entities of the Executive.

The initial focus, as stated by the ministry’s executive secretary, Gustavo Guimarães, will be combating fraud, for example, in Social Security benefits. The deadline established for completing the activities, however, is 12 months, which means that the results will only be released in the second half of 2024.