Framework is not great, but it’s good, and should be approved by this semester, says Tebet

At an event in São Paulo, the Minister of Planning states that the Lula government knows that social and fiscal responsibilities go hand in hand

By Lucas Bombana and Patrick Fuentes

The Minister of Planning, Simone Tebet, stated this Friday (14) that she believes the fiscal framework should be approved in the first semester of the year. According to the minister, although the framework is not great, it’s good, which should contribute to its approval in Congress.

“The framework is not great, it’s good. In a democracy, it’s the good that advances because we always have the opposition and the government having to work towards the legislative process,” Tebet said during an event at FGV (Getulio Vargas Foundation) in São Paulo. “It seems to me that, in some way, [the framework] pleased both the government and the opposition,” the minister added.

She also mentioned that the LDO (Budgetary Guidelines Law) will be published in the Official Gazette in an extra edition later on Friday. Tebet stated that the LDO will follow the rules established in the spending ceiling since the new fiscal rules still require approval in Congress.

“The LDO will show the real Brazil, the Brazil we have in relation to public finances. And it will be alarming; it will show that there is no fiscal space for absolutely anything new,” said the minister. She added that because the spending ceiling has been breached on several occasions, and it has not been accompanied by tax reform, “it has already collapsed and is dragging down the house called Brazil.”

Tebet also stated that the government is committed to an economic policy that promotes the stabilization of public debt, aware that social investment and fiscal responsibility go hand in hand.

She said that President Luiz Inácio Lula da Silva’s government knows that it is not possible to spend more than it collects, and it is also not possible to live with two or three years of primary deficit.

She affirmed that it is not part of the government’s plans to raise taxes to fund the investments envisaged within public policy, especially in education and health. Increased revenue will come through reoneration, reversing measures adopted in recent years, such as those related to fuels, Tebet said.

“There is harmony in the economic team, although we think differently,” she said. According to the minister, although she is more liberal and “they are a bit more heterodox,” they all have social commitment. “We know that we cannot do social without fiscal responsibility,” Tebet said, praising the fiscal framework — rules presented by the Treasury at the end of last month, aimed at balancing public finances and preventing the debt from growing as a proportion of GDP.

Tebet also affirmed that, even with the constraints imposed by the framework, it will be possible to fulfill the social agenda intended by the government without compromising public finances.

The minister also said that the PPA (Multi-Year Plan) will be made public next week, with a schedule planned for May and June, during which the government will visit all the capitals of the country to discuss and hear suggestions regarding the plan.

Tebet also stated that the first 100 days of the government “were not easy” due to budget constraints in meeting all demands, with the need to “change the tires while the car is in motion.”

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She also said that the result of the IPCA (National Consumer Price Index) for March, below analysts’ projections, and the current political scenario in Brazil are ideal for a reduction in interest rates.

Tebet stated that the political instability of last year is among the internal factors that contributed to the increase from 2% to 13.75% in the interest rate.

“I am convinced that part of the interest rate increase came as a result of the political instability generated during the electoral period and shortly before it. Political instability, every time the previous government said something, it created a reaction and generated insecurity in the market, then all the issues like the stock market falling, the dollar rising, created an atmosphere of insecurity, and then came the interest rate.”

According to the minister, the current political situation in Brazil, the slowdown in inflation, and external economic factors combined with the fiscal framework open up prospects for a reduction in interest rates. She said she expects a signal of this at the Copom (Monetary Policy Committee) meeting in May.

“All of this is a sum, and it’s in this context that we have to think about interest rates in Brazil,” Tebet said.

Article originally published on April 14, 2023 in Folha de S.Paulo