Although a significant number of economists defend a gradual fiscal adjustment, the plan announced by the government last Wednesday (11), which foresees measures to deliver a surplus of 0.5% of GDP (Gross Domestic Product) in 2027, falls short of the main proposals under discussion today.
The assessment of names like Samuel Pessôa, Bráulio Borges and Fabio Giambiagi is that a sudden adjustment is politically unfeasible and could lead the Brazilian economy into a recession.
Despite this, they point out that stabilizing the growing public debt, making room for a fall in interest rates, involves addressing structural issues with medium and long-term effects, such as limiting real gains from the minimum wage and decoupling spending on health and education from tax revenue.
These points were not included in the "Moretti plan", which foresees spending blocking as a way of meeting the core of the primary result target, restrictions on tax compensations and linear cuts in tax benefits, among other measures.
The text also provides for the removal of extraordinary oil revenues from the base of the health and education floors, but does not separate them from the collection.
Gross debt, a thermometer of a country's fiscal health, now reaches almost 83% of GDP, the highest level in five years, and has been growing at a rate considered worrying. This year alone, it rose more than 4 percentage points, according to data from the Central Bank.
This relationship indicates how much a country owes given the size of its economy, and the probability of each government paying its debts.
When the percentage is low, investors are more confident in their ability to pay, and the interest charged is lower. When this ratio is high, confidence in payment predictability is reduced and interest rates tend to be higher, penalizing companies and families.
Today, the basic rate (Selic) is 13.75% per year, and Brazilian real interest rates (after inflation) are the highest among 40 countries, according to data collected by the MoneYou portal.
Economists believe that what is essential is not a plan for the debt to fall, which would represent an excessive sacrifice, but long-term rules that guarantee that it will stop growing over time, stabilizing.
"We need a plan that shows the step by step of how we are going to reach 2030, and the measures announced so far were to enable a surplus of 0.5% of GDP in 2027", says Bráulio Borges, researcher at FGV Ibre, director of the Macrotempo consultancy and columnist for Folha. "It is a strategy that does not convey credibility, as it is subject to the political cycle."
Borges is one of the authors of a study that proposes a gradual fiscal approach. These are measures that would stabilize the debt from 2030 onwards and would allow achieving a primary surplus (revenue minus expenses before interest payments) of 2% of GDP in 2036.
Among them is the change in the minimum wage correction rule, which is currently readjusted by the previous year's inflation plus the GDP variation from two years before, limited to 2.5%. According to the economist's proposal, the constitutional floor continues to be adjusted above inflation, but the additional adjustment would be based on GDP per capita (around 1.6%).
Changing the rule is considered necessary by economists because, as the national minimum is a reference for social security and assistance benefits, for every R$1 increase, expenses increase by more than R$400 million, according to data from the Ministry of Planning.
"GDP per capita is similar to productivity [how much each worker produces per hour worked], and it would make sense for the correction to be based on this indicator because the minimum is the variable that serves to regulate the labor market", says Borges.
Among other measures, the economist also points out the need for health and education expenses to be disconnected from revenue and linked to population growth.
Under the current rule, the Union must invest at least 15% of revenue in health and 18% in education. When revenue rises above the ceiling provided for in the fiscal framework, which limits the increase in spending to 2.5% above inflation, the floors in both areas advance faster than the rest, compressing the space for other investments.
Furthermore, as revenues follow the pace of the economy, these expenses rise a lot at times when the country is growing, when they are less necessary, and fall during crises, in an effect contrary to what is desired.
Samuel Pessôa, researcher at FGV Ibre (Brazilian Institute of Economics of Fundação Getulio Vargas) and BTG Pactual and columnist for Folha, argues that health expenses, where there is a greater need for spending due to the aging of the population, should be indexed by the fiscal framework (currently inflation plus 2.5%).
In the case of education, where the number of children in schools is falling, the correction would only be based on the IPCA (Broad National Consumer Price Index).
He also proposes lowering the spending limit foreseen in the fiscal framework from 2.5% to 1.5% per year and limiting the real increase in the minimum wage to 0.5% per year. "The idea is to reduce the speed of growth in primary spending necessary for interest rates to fall. And the drop in interest rates greatly improves debt dynamics", he states.
Fabio Giambiagi, associate researcher at FGV Ibre, suggests a spending ceiling that is effective (which includes all expenses without exceptions) and that spending only grows due to inflation next year, being corrected in subsequent years by the IPCA plus 1.5%.
"The program [announced this week by the government] goes in the right direction in some aspects, but important structural measures are missing," he says.
Like Borges and Pessôa, he also defends a change in the minimum wage rules, which would be corrected by inflation plus 0.5%, and that health and education should no longer be linked to tax collection, among other measures.
"With this, we would move towards a 1.5% primary surplus at the end of the government, which is what the economic team projects today, but no one believes it", he states. "The debt would continue to increase, this is already contracted, but it would be possible to have the interest rate continue to fall."
Economists Aloisio Araujo, from the Brazilian School of Economics and Finance (EPGE/FGV-RJ), and Vitor Costa, from the Institute of Pure and Applied Mathematics (Impa), assess that, in addition to a credible fiscal adjustment, Brazil needs to review the center of the inflation target pursued by the Central Bank, from 3% to 4%.
"The Brazilian real interest rate, one of the highest in the world, remains close to 9%, embedding a premium that, according to our model, grows with the risk of a target that is too low, which can only be met with an excessive and hardly credible fiscal adjustment", they stated in an article in Folha.
SHOCK TREATMENT
For some economists, the degree of deterioration in public accounts is such that it does not allow for a slow and smooth adjustment, which would only postpone the problem and invite the opening of exceptions. These advocate a kind of debt shock treatment.
In the assessment of Gabriel Barros, chief economist at ARX Investimentos, the current situation of public accounts and the conditions of the global economy, with rising American interest rates, prevent slow solutions. "The country needs to deliver a fiscal shock, a quick adjustment that attacks the structural problem, which is the growth in expenditure", he states.
He suggests measures ranging from decoupling the minimum wage from pensions to administrative reform, including the merger of social programs, the end of the use of public funds to circumvent the Budget and the review of tax incentives.
"The size of the challenge that Brazil faces is to make a fiscal turnaround of at least four points of GDP, going from a deficit of less than 1%, like the current one, to creating a surplus of at least 3% at the end of the mandate, in 2030", he assesses.
If this adjustment is made in full, its projections for next year are that the economy would grow by a maximum of 0.8%, inflation would advance between 3.5% and 4.5% and the Selic would be reduced to between 9% and 11%.
