Central banks are not responsible for high interest rates

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There are many numbers that demonstrate this imbalance. But nothing is more eloquent than this situation. The government will have a significant deficit this year, amounting to about 80 billion reais. And it will be able to openly declare that it has achieved its legal goal of zero deficit.

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The trick starts with making your goals more flexible. This is zero, but as we know, setting a budget correctly is a complex task, so the framework accepts tolerances. The result could be a deficit equivalent to 0.25% of GDP (approximately 31 billion reais), or a surplus of the same size. No one in the government thought of pursuing a surplus goal. They say it’s about having money to spare when there are so many important expenses.

Let’s give a temporary OK here. In fact, there are many needs that must be met with public spending. Still, a government like this one, already heavily in debt, should be prudent, leave room for the unexpected, and aim for a zero outcome. In the current situation, it would be very good if the government only spent what it collected. This is despite a significant increase in revenue.

But that’s not enough. The Treasury says it should aim for the maximum acceptable deficit. Otherwise, we would have to cut a lot of money, which the president does not approve of. The Federal Board of Audit has formed the opinion that the government should aim for zero deficits rather than just an acceptable range. But if that happens, it won’t be until next year. The executive gears are not in such a hurry. The government will therefore aim for a deficit of 31 billion reais (0.25% of GDP) when implementing this year’s budget, which, according to the logic of the law and fiscal framework, is equal to zero.

However, according to the Ministry of Finance’s own accounts, the real deficit is close to 80 billion reais. There are two tricks. In addition to allowances, the law and framework provide that certain expenses may not be credited to the account. Expenses range from paying court orders to emergency and non-emergency expenses such as purchasing military equipment. Yes, money is spent, but it is not accounted for in formal legal accounting.

So, ladies and gentlemen, there are no hidden cards in this hand, and nothing hidden in the other. The deficit of 80 billion reais then appears as 31 billion reais, which corresponds to zero. This is a feat.

Unfortunately, the reality is somewhat different. The unaccounted for money comes out of government coffers and is actually being spent. Therefore, your expenses will be more than your income. Therefore, the government needs to borrow money to meet its current expenses and pay interest on the debt already made. In other words, public debt will increase.

At the beginning of the Lula III government, total debt was equivalent to 71.7% of GDP. In August last year, it was already 77.5%. And rise. When launching the framework, the Treasury predicted that this total debt would reach 77% of GDP by the end of 2026 alone, in a worst-case scenario. It has already exceeded that figure this year, and new projections predict that debt will reach 83% of GDP by December 2026, at the end of the administration.

According to calculations by economist Alexandre Schwartzman, federal spending has increased by 280 billion reais under the current administration. Even subsequent tax increases will not be able to cover all of this. There is no doubt that more costs are necessary and fair. But is there really nothing to cut?