VIDEO: Understand how the fiscal framework works in numbers

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Set imposes floor and ceiling for government spending. G1 draws a graph and explains scenarios of the new rule in video. Understand how the fiscal framework works The so-called “fiscal framework”, the new rule for public accounts that will replace the spending ceiling, was presented this Thursday (30). Basically, it pursues a primary result target established by the government, with the objective that revenues are greater than expenditures – to reduce public debt and allow for more spending and investment in areas such as health, education and infrastructure. For this, the government needs to ensure that it has more money to spend each year, but also impose a limit on this increase. And he proposes this using two main rules: one linked to the fulfillment of the primary result and another linked to the real growth of expenses in relation to the previous year. See, in the chart below and in the video above, how these regimes work with examples that translate percentages into absolute values. Understand the fiscal framework in numbers g1 How it will work The interval, or “band”, for the primary result will work along the lines of what happens today with the inflation target system: there is the center of the target and the tolerance bands for more and for less. For 2024, for example, the government’s target is to match revenue and expenditure – which would result in a primary result of 0% of GDP. Under the proposed system, the target will be considered “fulfilled” if it falls between a deficit of 0.25% and a surplus of 0.25%. If the government’s primary result is above the target ceiling, the surplus can be used for investments. If the primary result falls below the band, next-year expenses may only grow by 50% of next-year revenue growth. In addition, there are still limits, minimum and maximum, for the real growth (discounting inflation) of primary expenditure, which varies between 0.6% and 2.5%. If Brazil has difficulty composing revenues (meeting targets and collecting taxes), the real growth in expenses cannot be less than 0.6%. In good years, in which Brazil manages to increase revenue significantly, real growth in spending cannot exceed 2.5%. In practice, this range will work as the new spending cap. The previous ceiling foresaw the correction of spending only by inflation – that is, with real growth of 0%. This new rule makes the previous limit more flexible. One point: the proposal foresees that health expenses grow to 15% of net income and education expenses to 18%. That is, they will have real growth, above inflation. The new fiscal framework also does not limit expenses such as the basic education fund (Fundeb) and the nursing floor already approved by Congress.

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