The rules proposed in the new fiscal framework refer to a labyrinth so complex as to suggest something deliberate
If simplicity is the highest stage of sophistication, the gadget that gives shape to the new tax mark can be seen as a rudimentary piece. The proposed rules refer to a labyrinth so complex as to suggest something purposeful.
The balance of the minister Fernando Haddad was to satisfy (or equally displease) two antagonistic poles. On the one hand, the hard core of pt, which seems to have been supported by President Lula da Silva, for whom considering the control of public spending represents an attack on human dignity. They believe that government spending generates growth and increases tax collection, just closing the loop on self-financing.
This madness is opposed by the primitive fundamentalism of most market analysts, who have embarked on the spending ceiling fallacy and for whom only a very cruel spending cut equals debt growth. They are unaware that there are no political conditions for an administrative reform and that the roof law, otherwise impracticable, has only canceled public services. Therefore, if the intention was to shuffle the cards and confuse, the new goal already plays its role.
Keeping growing expenses below the pace of revenue growth can have a bigger impact than you might think. Let us look back: the 12-month change in total central government expenditure between January 2000 and March 2023 (279 observations) recorded an average of 12.2% per year, higher than the average annual change in revenue managed by the Revenue Agency, order of 11.5%.
If spending had grown at the rate of 70% of the tax increase, as is now being proposed, today we would have a much more favorable picture for public debt. It is also good that real spending growth is limited to a maximum of 2.5% annually, well below the 5.4% real growth seen over this period.
The debt-to-GDP ratio, in turn, can have a digestible trajectory if the government is able to generate primary surpluses and, with generous central bank approval, interest rates are lower. During this period from January 2000 to March 2023, the average annual growth in nominal GDP (using the Central Bank’s monthly estimate as a reference) was 10.2%, well above the 70% growth in revenues, around 1 8% per annum. The numbers are many and the simulations infinite, which does not allow for fatalistic predictions.
The new rule isn’t good, but it could be worse. Its complexity anesthetized the virulence of PT and the market also did not convulse. It’s what we have. Point for the minister.
Source: Terra
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