Economy Begins Reacting but There’s a Challenge, Says Minister Guedes

RIO DE JANEIRO, BRAZIL – Economy Minister Paulo Guedes said on Wednesday, September 25th, that the economy has already started a recovery process, but the country still has to deal with the issue of public spending, reinforcing the need to retain constraints on federal spending.

In a public hearing at the CMO (Joint Budget Committee) in Congress, he again upheld his team’s plan to reduce compulsory spending: disengage, unbind and detach the Budget.

“The economy is already in motion. This takes a while, but it has already begun to move. The results are now higher than expected in revenues, in taxes. Now, we proceed with the challenge of earmarked funds. All this earmarked money has drained the powers of the political class,” the minister said to a deputy.

In a gesture of support, the Chamber’s president, Rodrigo Maia, also attended the committee and spoke against the Budget indexation and the increase in mandatory spending.

The government expects to obtain R$37 billion (US$9.3 billion) by abolishing the obligation of annual inflation increases for many mandatory expenses. The budget reform proposal could change the minimum allocated to health and education, prevent automatic annual readjustments for civil servants and also extinguish public funds.

A recently suggested amendment to the budget proposed eliminating from the federal Constitution the obligation to readjust the minimum wage annually by inflation. But the concept was abandoned in the face of criticism from Congress and President Bolsonaro.

Despite the public accounts difficulties, the minister is against flexibility in the spending ceiling. In his opinion, the failure to control public spending has been the reason for the country to have collapsed into a period of hyperinflation, recession, and a sharp rise in interest rates over the past 40 years.

Therefore, the solution devised by the Ministry of Economy is to reduce compulsory expenses.

In 2020, mandatory expenses are expected to stand at approximately 94 percent of the total budget. As a result, there could be a shutdown of all governmental expenses in 2020, with the first budget prepared by Jair Bolsonaro’s management.

The difficult scenario is not any worse, only because Guedes’ team is seeking measures that may bring positive fiscal impact, but which still need to be approved by Congress.

This should be addressed in the proposal of a federative pact, a set of measures that provides more funding for states and municipalities.

The government’s intention is to introduce the pact soon after the Senate completes the vote on Welfare reform, which is expected to occur in the first half of October.

Guedes reiterated that the government’s proposal for the restructuring of the tax system should be presented to Congress next week.

“Although we had an accident in the Federal Treasury, the truth is that our proposal is virtually ready,” referring to the resignation of the Treasury’s former secretary Marcos Cintra, who fell after advocating the establishment of a tax similar to the former highly unpopular Provisional Contribution on Financial Transactions (CPMF).

To the committee, the minister put forward the idea of establishing a Fiscal Council of the Republic, which would be made up, for instance, by the presidents of the Republic, the Chamber, the Senate and the Supreme Court. He mentioned that many states, faced with tax difficulties, appeal to the Supreme Court that ends up judging cases in favor of these bodies, but causing a hole in the federal budget. That is why Guedes hopes that the presidents of all governmental branches will convene every three months to discuss the country’s economic situation.

Source: Folhapress