Union subsidies rise in 2022 and reach the highest level in six years, says Plano

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Subsidies totaled 5.86% of GDP last year, the highest level since 2016. Government wants to analyze programs to propose to Congress possible changes in those that are poorly evaluated. The Ministry of Planning and Budget informed this Wednesday (7) that the Union’s subsidies advanced last year and reached the highest level in six years. According to official data, subsidies totaled 5.86% of Gross Domestic Product (GDP) last year, the highest level since 2016 – when they added up to 6.13% of GDP. Comparison by proportion of GDP is considered more appropriate by economists. Subsidies from the Union Reproduction of a study by the Ministry of Planning Subsidies include: tax expenditures (waiving tax collection to benefit sectors of society); financial subsidies (disbursements through transfers to maintain public entities, as well as debt assumption); and credit subsidies (Union resources allocated to funds, programs or credit concessions). According to the Secretary for Monitoring and Evaluation of Public Policies and Economic Affairs, Sergio Firpo, the increase in financial and credit subsidies in recent years is related to the process of increasing interest rates, carried out by the Central Bank to try to contain inflation. “The yield curve went up, that was the main effect why they increased in these years [os subsídios financeiros e creditícios] If there is a reversal, there should be a 1.2% drop in GDP to levels prior to that”, added Firpo, from the Ministry of Planning. The secretary also assessed that the level of subsidies “cannot be too high”. , said that benefits need to be evaluated periodically, a process that is coordinated by his Secretariat. But, despite being questioned, he did not assess whether the current level of subsidies is high. “It depends, it’s a difficult question to answer. It depends on a lot to say what is high or low. It depends on the strategy of what you want to achieve with the subsidies, it depends on the moment you are going through in terms of encouraging certain sectors. It depends on a lot of things to arrive and say whether it is high or low”, he said. Evaluation of subsidies The process of reviewing tax benefits will be coordinated by the Secretariat for Monitoring and Evaluation of Public Policies and Economic Affairs of the Ministry of Planning, which will be responsible for carry forward the process known as “spending reviews” (the review of expenses and tax benefits). According to Sergio Firpo, the government knows the importance of monitoring public spending. “We are beyond that discussion that involves a simplified approach to what and where we need to cut. The question that arises is what to do to improve the quality of public spending. How do we guarantee a systematic monitoring process to guarantee citizens’ right and access to these public policies”, he declared. he added that this “bypasses the Secretariat.” “We contribute, but the tax issue does not pass through here. Not that we are not concerned about the fiscal aspect, we are all”, he said. Asked whether the evaluations of subsidies considered bad will be taken to the National Congress, so that they can be changed or closed, Firpo said that this is “a possibility”. “But all this has to be done in an orchestrated manner by the federal government. It has to be done by the party responsible for this relationship with Congress”, he said. Fiscal framework The process of evaluating public policies, to reduce expenses, is considered important by analysts to avoid the compression of the so-called “discretionary”, expenses free in the face of the fiscal framework – the new rule for public accounts that is being evaluated by the Legislature. The text was already approved by the Chamber of Deputies in May, but still needs to pass through the Federal Senate to be valid. The government’s expectation is that it will be approved by the senators before the legislative recess, in mid-July. The new rule comes to replace the spending ceiling, whereby most spending could not grow above the inflation of the previous year. In the case of the fiscal framework, the proposal of the government is different from the spending ceiling, but there would still be a cap on expenditures. They cannot rise more than 70% of the increase in revenue, and they cannot advance more than 2.5% per year, above inflation ( an actual high range of 0.6% to 2.5% has been proposed. And targets were also set for public accounts. The government seeks to zero the fiscal deficit in its accounts in 2024 and obtain positive balances in 2025 and 2026. of fiscal framework may cause the process of “compression” of the so-called “discretionary expenses” to occur again. Unlike mandatory expenditures, such as pension payments, benefits and civil servants’ salaries, “discretionary” expenditures are those that can be allocated freely by ministries. In recent years, with the spending cap (which limited most expenditures to the previous year’s inflation), free spending had to be blocked several times to comply with this rule. This led to a lack of resources for some actions, such as: agricultural defense; scholarships from CNPq and Capes; Pronatec; issuing of passports; Popular Pharmacy program; scholarships for athletes and environmental and labor inspection, among others. “The existence of a limit for the growth of expenses is desirable, as it creates a paradigm or standard that, for consistency, tends to serve as a reference for each element of the set of expenses”, evaluated the consultancies of the Chamber of Deputies. The Chamber’s Budget Consultancy reported that, between 2009 and 2016, total government expenditure (not counting the financial budget, public debt) grew by an average of 4.6% per year, in real terms (above inflation). After the approval of the spending ceiling, expenses continued to increase in real terms, above inflation, but at a lower level: 1.1% per year between 2017 and 2022. As a result, the new spending limit proposed through the fiscal framework , with a real increase of up to 2.5% per year, is above the level that prevailed at the ceiling (+1.1%) and below the average between 2009 and 2016 (+4.6%). The new fiscal rule, however, brings a floor for spending on investments, health and education, which may reduce the space for free spending by ministries. At the same time, the Lula government signed a commitment to give a real increase to the minimum wage every year. “Controlling the growth of mandatory expenses is an essential condition to prevent, due to the ceiling, the process of compressing discretionary expenses from occurring again, as occurred under EC 95/2016 [teto de gastos]”, concluded the consultations of the Chamber.

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