Broadcast: 04/24/2023
Special: Adjustments on spending predicted by the Fiscal Framework would only lose to Temer Administration’s performance
Despite the market’s negative sentiment towards the final version of the fiscal framework proposed by the government, the spending adjustment envisaged by the project would only be surpassed by Michel Temer’s government if it had been in effect since 1998, according to calculations by the consultancy Buysidebrazil.
In addition to the number of exceptions to the expense limit rule, investors were also concerned about the lack of stricter penalties in case of non-compliance with fiscal targets in the text sent to Congress, as well as the heavy reliance on extra revenues. “The fiscal targets are ambitious,” agrees Ariana Zerbinatti, one of the partners and senior economists at Buysidebrazil.
“A proposal for a fiscal framework has its merits; it is even quite strict when considering the historical public spending in recent years,” says Ariana Zerbinatti, economist and partner at Buysidebrazil.
The economist acknowledges that the spending cap rule was more stringent, but she points out that after the COVID-19 pandemic that began in 2020, it became more challenging to comply with, with several exceptions. As for the exceptions outlined in the new framework, Zerbinatti also does not see “major problems,” as they are very similar to the spending cap, with only a few additions that were already expected, such as the nursing wage floor.
Despite the more constructive view on the fiscal framework, Zerbinatti shares the concern of many of her colleagues regarding the dependence on extra revenues to achieve the “ambitious” primary surplus targets set by the government.
In her calculations, considering her estimates of GDP and revenue, there is a shortfall of about R$ 100 billion in revenues to reach a zero primary surplus next year. According to her, the targets for 2025 (surplus of 0.5% of GDP) and 2026 (surplus of 1% of GDP) are even more challenging. The reliance on extra revenues raises concerns about the feasibility of meeting the fiscal targets and the sustainability of the fiscal adjustment in the long run.
Source: http://broadcast.com.br/cadernos/financeiro/?id=UEp1K0VLb3N0NCtRK2UyZjA1TTF1QT09
