New Fiscal Measures: Another Step Backwards

BRAZIL ECONOMICS - Report 28 Mar 2016 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

Last week Finance Minister Nelson Barbosa announced four proposals from the government in the fiscal policy field: renegotiation of the debts owed by the state governments; establishment of a primary spending limit; creation of a special spending contingency regime; and a change in the way the Central Bank is alowed to control market liquidity. The first three measures are clear steps backward in the fiscal policy area, while the fourth – a change in the way the Central Bank can affect the monetary base – has the clear flavor of a mechanism to artificially reduce the public gross debt.
Fortunately, some of these proposals require enactment of a complementary law, meaning extended debate in Congress and the need for a qualified majority for approval, something unlikely in the current political climate. But the content of this package of measures reveals once again the lack of real commitment to a minimum of fiscal responsibility. Taken together with the recently announced measures to expand credit, it provides evidence that the government is flirting more intensely with economic populism, exemplified by the “new economic matrix”, which is the root of the current crisis.

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