Statement comes amid growing pressure for spending-cut measures

14/06//2024

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Fernando Haddad and Simone Tebet — Foto: Diogo Zacarias/MF

Finance Minister Fernando Haddad said on Thursday that it is essential to intensify studies on the review of public spending. According to Mr. Haddad, “primary spending needs to be reviewed, tax spending needs to be reviewed, and the Central Bank’s financial spending as well.” He also mentioned that the economic team set in motion a “comprehensive, general, and unrestricted” review of expenses.

Mr. Haddad unexpectedly commented on the matter alongside Planning Minister Simone Tebet after a last-minute meeting at the Ministry of Finance amidst financial market tensions due to concerns that he could be losing ground within the Lula administration and uncertainty about the progress of the government’s economic agenda following the Senate’s rejection of a provisional presidential decree on social taxes PIS/Cofins this week.

The statement was in response to demands for spending-cut measures, as there is a perception among market agents and experts that the fiscal agenda on the revenue side is exhausted.

Shortly after the meeting, in the early afternoon, the finance minister said that he had started discussions with Ms. Tebet on the 2025 Budget and that the public spending review agenda “is gaining more traction over time.” “Simone [Tebet] and I are talking more and more about this,” he said.

The minister’s statement to the press caused the foreign exchange and interest rates to fall and the Ibovespa, Brazil’s benchmark stock index, to recover losses partly. Despite the statements, economists remain skeptical about the possibilities of concrete progress on these proposals.

“We asked for an intensification of efforts so that by the end of June we can have clarity on the 2025 Budget, structurally well-constructed to provide reassurance on addressing the country’s fiscal issues,” Mr. Haddad said.

According to the minister, there will be a “more intense pace” of work this month, as the budget proposal needs to be sent to Congress by August 31. Although he did not specify which types of spending are being structurally analyzed by the economic team, he mentioned that the review aims to accommodate the “legitimate aspirations” of Congress and the Executive branch, “especially so that we can have peace of mind next year.”

The minister noted that any proposals for public spending review that require legislation need to be approved this year to impact 2025.

“Congress is willing to move forward, willing to review primary spending and cut privileges. Topics discussed like super salaries, correction of benefits practiced against the law, and improvement of records are back on the table. We think this is great; it facilitates the work of balancing the accounts.”

On Wednesday, domestic assets were hit by another round of deterioration after President Lula cited increased revenue and lower interest rates as a recipe for fiscal balance—without mentioning spending cuts or the rejection of the provisional presidential decree.

When asked about Ms. Tebet’s remarks on detaching the minimum wage from benefits such as unemployment insurance and the Continuous Cash Benefit (BPC, for very poor elders and disabled people), Mr. Haddad said that the position is the “economic team’s,” claiming that they are “in sync.”

“Although the Ministry of Finance deals more with revenue and the Ministry of Planning with spending, we are not exchanging views on the feasibility of the proposals all the time. Everything that can be done on both sides helps.”

The population, the minister said, needs to continue to have their fundamental rights met, as well as investment happening “to improve the productivity of the Brazilian economy.”

Following this, Ms. Tebet reiterated that the economic team has “plans A, B, C, D, E” for the spending review but noted that the review of constitutional floors for education and health are “towards the end of the alphabet in the menu.” This “menu,” she said, has not yet been presented to President Lula.

Ms. Tebet also said it is necessary to forget the word “pension” in discussions about detaching the minimum wage, referring to retirement. “Even I don’t agree with that,” she responded when questioned.

The minister has opposed detaching pensions from the minimum wage but supports studying the delinking of other benefits. According to her, this is an agenda that is “mid-alphabet,” referring to the plans and possibilities studied by the economic team.

According to Ms. Tebet, social security spending is increasing sharply, but the solution is not a new pension reform. “The problem lies in social security exemptions that affect tax spending. Solving tax spending problems means not creating new tax exemptions in the country, as pointed out by the public spending watchdog in the government’s 2023 accounts report, approved on Wednesday,” she said.

The planning minister also noted that there are several filters before a proposal can prosper. “Haddad has to agree with the Ministry of Planning’s proposals, and vice versa, otherwise we won’t move forward.”

*Por Guilherme Pimenta, Gabriela Pereira — Brasília

Source: Valor International

https://valorinternational.globo.com/