Once again, pressure to spend more rears its head
It is the result of a certain economic immaturity to hold the view that the state can do everything, that there are no limits to public spending, and that if there are ways to circumvent the spending cap law it is necessary to use them. It is not. Even if the government has the legal permission to exclude, for example, the Fundeb basic education fund's budget from the spending cap, this expense is still computed as public expenditures and leads to an increase in debt. The ratio of gross debt to GDP is quickly heading towards an unsustainable level of 100%. An identical impact on debt levels will result from the capitalization of state-owned company Imbel, a manufacturer of war material, or from the expansion of requests for extraordinary credit. This view stems from a confusion between the economic notion - which is to prevent the growth of public spending - and the accounting notion of the spending cap.
In fact, during discussions around the budget cap bill - which ties increases in spending from one year to the next to inflation levels, thereby allowing for no real increases in spending - two economists spoke out against removing the capitalization of state-owned companies from the budget ceiling calculations. These two economists were Adolfo Sachsida, today special secretary for Economic Policy at the Economy Ministry, and Roberto Ellery, director of the College of Economics, Administration, Accounting and Public Policy Management at the University of Brasília (UnB).
Mr. Sachsida says that it was through excessive external debts taken on by state-owned companies that the government financed its balance of payments accounts in the 1970s - until the country collapsed in 1982.
Even in the face of criticism, the law was signed by President Michel Temer at the end of 2016 maintaining this possibility, and shortly afterwards his administration capitalized Caixa with R$15 billion in resources from the FGTS Workers Severance Fund. It's true, however, that the way the spending cap bill was approved did not put the Temer administration in a bind because government expenditures at the time were far from the limits.
One of the positive aspects of the law was that it forced governments to discuss reductions in spending. It would force the debate on where to cut, and guided the reductions in spending that was imposed on pension reform. The savings obtained at that time, of about R$1 trillion in ten years, however, has now been totally consumed in...
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