About to conclude the third year of his current term, President Luiz Inácio Lula da Silva has already demoralized the fiscal policy that his own government created in 2023. Under the rules of the new fiscal framework approved by Congress in the first year of government, spending can increase from year to year by up to 2.5% in addition to inflation. This was the promise of the economic team. In practice, since then, total spending has increased twice as much, averaging 5% per year, according to a GLOBO report. How did this happen? The government found a way to exclude each new expenditure from the calculation. From exception to exception, the count has increased. On paper, the Ministry of Finance claims to comply with what was agreed. In practice, the debt continues to grow.
- Accounts: Total spending increases 5% per year above inflation under Lula’s government
It is true that the Lula government inherited the problems of Jair Bolsonaro’s management, such as the mountain of public debts which can no longer be contested in court, orders the court. At the end of 2023, the Federal Supreme Court (STF) ordered the government to reimburse them, allowing the expenditure to be removed from the spending cap between 2023 and 2026. Last year, Rio Grande do Sul faced tragedy with the devastation caused by the historic flood. Given the scale of the disaster and its unprecedented nature, financial assistance from the federal government also did not match the budget target.
- Editorial: The budgetary framework has become a fiction
But several other exceptions have been made under all kinds of weak justifications. National defense spending, temporary education and health spending, emergency aid to Brazilian companies hit by Donald Trump’s tariffs, reimbursement of illegal reductions in benefits granted to INSS policyholders, investments by public companies in the Growth Acceleration Program (PAC), the restructuring of struggling Correios – and who knows what else will be on the list, were not included in the goal.
It is to some extent pointless to debate whether the government should incur such expenditure. What matters: There is no doubt that they should not have been removed from the expense account. During the four years of the third term, exceptions to the framework will exceed 170 billion reais, according to projections from the Independent Fiscal Institution (IFI).
It is even more difficult to accept exceptions because, when formulating the framework, the economic team established a margin of tolerance for budgetary targets. It did so precisely to cope with unexpected economic shocks. The final result of a year would be considered achieved even if it varied more or less within the limit of 0.25 percentage points of GDP. For a spendthrift government, even that was not enough. Always aiming for the goal, he found a way to circumvent the rule by increasing the list of exceptions whenever necessary. Lula only deceives those who want to be deceived. The debt keeps growing – and that’s what everyone is watching.
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