We have seen speeches by former President Lula (PT) attacking the spending ceiling with some frequency. And in them, among the various insults exposed, are attacks on businessmen and bankers on account of defending that the next government assume a serious commitment to fiscal responsibility.
With regard to businessmen, Lula stated that they do not care about the poor, implicitly assuming that there would be some contradiction between defending fiscal responsibility and implementing social policies. As for bankers, they were allegedly satisfied with the high level of interest rates promoted by the Bolsonaro government.
These lines would be comical if they weren’t false and even frivolous. What the spending ceiling does is just make explicit a natural conflict in any democracy: how to allocate public resources among the various possible areas. And with a tax burden of approximately 35%, the issue is not lack of resources, but rather the definition of priorities.
The problem is that Lula, like the populist and lenient behavior of the current president Bolsonaro, does not want to put his hand on the “vespeiro” and take to Congress a project that reduces budgetary bindings and allows a healthier management of the country’s public accounts. . And that, probably, for displeasing a good part of the base that supports him.
In any case, Lula, when criticizing businessmen and bankers, seems to have forgotten what his government and that of ex-president Dilma Rousseff were, when, for example, a part of the Brazilian business community (obviously the closest and most capable of carrying out lobbies), received a plethora of resources in regressive transfers from the state.
The National Bank for Economic and Social Development (BNDES) made billions of reais available – via direct injection or with subsidized interest – to large companies, including to form large conglomerates with high market power. And that’s not to mention the tax exemptions, which began during the Lula government, which reached almost half a trillion reais during the PT government.
In terms of bankers, we must remember that the average Selic rate during the Lula government was 15.5%, reaching 26.5%, a level much higher than the current level. However, the fact is that no government raises interest rates because it wants to, but rather to control inflation.
Today, despite the Bolsonarista discourse of adjusted public accounts, what we have is a time bomb ready to explode from next year. And what Lula proposes is just to increase public spending, in the vain expectation of generating more income and, consequently, greater revenue for the State in the future.
And this, apparently, based on premises that have clearly been shown to be wrong throughout our history; those that the adoption of a selective industrial policy and that more income destined for consumption can be the engines of sustainable economic growth.
The fact is that policies of this type, in addition to not generating the expected growth multiplier effect, end up inhibiting the country’s growth potential and worsening the situation of public accounts. And in this scenario, Lula will only have three ways to deal with future budget deficits.
The first, via the issuance of coins, whose automatic result is to raise inflation and, at the limit, bring back the hyperinflationary process that we experienced until the first half of the 1990s. In this case, the poorest will be the most directly affected, as always .
The second way will be to raise taxation, further reducing the growth potential of the economy, with a bad impact on the level of employment. Again, the ultimate effect will be to raise the level of poverty.
The third way will be to finance the constant public deficits through the issuance of bonds. But this, in addition to implying a growing increase in the interest rate, with also negative results on the labor market, has the limit of distrust on the part of holders of this asset.
In other words, with the increase in the public debt/GDP ratio, society will begin to distrust the government’s ability to honor its commitments, leaving it with only two alternatives. The first is to monetize the economy, which will take us back to the first case, generating inflation.
The second will be to default fully or partially on the debt, something unlikely in the short term, but which cannot be ruled out in the medium and long term, depending on the management of public accounts. And, in this case, it will not be only bankers who will lose because they have securities in their portfolios in their respective treasuries.
Unlike the Argentine default, in which a large part of the public debt holders were foreigners, Brazilian public securities make up, for the most part, the portfolio of fixed income, multimarket and pension funds (open and closed) of millions of Brazilians.
Thus, the real losers will be those who are part of the middle class and all those people who expect to retire with a minimally decent income in the future. In this process, it is unlikely that the real rich will be harmed, since they have more capacity to anticipate the problem and more access to investments outside the country.
Lula is definitely not the solution to the clear mismanagement that Bolsonaro’s administration has transformed. On the contrary, it is another problem from the past that we bring back and whose account for society, which today is already very high, will amplify if he takes forward his proposal of irresponsible management of public accounts.
Basically, the maxim “if we want different results, we must have different attitudes” should apply. What we are unfortunately doing in this election is more of the same.
