Ibre sees debt trajectory as possible fiscal anchor
Brazil’s new fiscal framework can be anchored in the country’s debt trajectory and the recommendations of the National Treasury, so that targets in other parameters, such as expenditures and revenues, are defined in each government cycle to signal the flight plan of the public accounts. This model, which is used in countries such as New Zealand, would introduce a degree of flexibility into the rule to accommodate the different political and economic projects of democratically elected governments, without compromising the credibility of the fiscal regime.The diagnosis was presented to Valor Fiscal by researchers Manoel Pires, Bráulio Borges, and Carolina Resende of the Brazilian Institute of Economics of the Getulio Vargas Foundation (FGV Ibre). Among the points to pay attention to when defining the new Brazilian fiscal rule, they point out that there will be changes in health and education spending, which in turn will be linked to revenues and could lead to increased spending. In addition, they say that not only the definition of the numerical parameters, but also the deadline for the delivery of results is important because of the effects generated on economic activity and interest rates.The researchers list several principles that the new fiscal rules should respect. First, the assessment of fiscal space and its risks should determine the size of the deficits that can be run and the speed of the adjustment. The fiscal rule operationalizes how fiscal space is perceived and used, they explain.The smaller the space, the tighter the rule. Mr. Pires recalls that the spending cap, for example, was created at a time of acute fiscal crisis and its stringency stems from the very limited perception of fiscal space at that time.However, fiscal space is not a constant or immutable concept over time, they point out. It can change with variations in tax collection and the structural spending a government wants to promote, with the growth rate of the economy, and with market conditions that determine interest rates. "The fiscal framework should have some flexibility to parameterize its rules over time and allow governments to conduct fiscal policy in line with their policy objectives," writes Luiz Guilherme Schymura, director of FGV Ibre, in the institute’s March letter.In addition, the more comprehensive the rule, the better the control of public accounts, because it avoids evasions and "creative accounting," they say. However, there are exceptions...
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