The Fiscal Framework Proposal

BRAZIL ECONOMICS - Report 24 Apr 2023 by Affonso Pastore, Cristina Pinotti, Paula Magalhães and Diego Brandao

The fiscal framework bill sent to Congress confirms what we already knew: the only guarantee is higher spending in real terms, growing within an interval of 0.6% to 2.5% a year. The text does not contain any punishments for failing to meet the primary surplus targets, which are mere indications. The only “punitive” aspect is to reduce the spending increase to 50% of the increase of real revenue instead of 70% if the target is not satisfied.

In such increase, the government will have to accommodate real increases in the minimum monthly wage (which affects all the linked income transfer categories); expenditures bound to rise in the same proportion as revenues (such as spending on health and education); and the floor applicable to investments. The bill leaves it clear that to meet the new rules, it will be necessary to generate steadily rising revenues, which will inevitably face resistance in Congress and from civil society due to the already high tax burden.

According to our evaluation, instead of applying the brakes on growth of the debt/GDP ratio, the bill sent to Congress will be a license to spend more, leading to rising public debt throughout the new Lula administration.

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