PEC 55 will force an upgrade in political debate

Ricardo Sennes

An important step in Brazil’s political agenda, the PEC 55 (an amendment to the Constitution that will limit public expenditure) will unveil a new pattern in the debate about the role of the State in the development model of the country. The PEC uses the 2017 budget as its basis, with the following years being adjusted by inflation rates only. In this manner, there will be no new expense without reducing an existing one, raising the discussion about the efficiency and fairness of expenses, stirring up the political dispute. This is a healthy and inescapable wave in the flow of modern democracies.

Considering the great struggle that the Brazilian political system presents to strategic decisions, a measure like the PEC 55 can only move forward in moments of acute crisis. In less disturbed times, it would be less acceptable – and could hardly gain support from congressmen. That’s one of Brazil’s dramas: hard decisions can only be taken in dire situations.

The PEC 55 brings to the table two critical decisions. In the short-term, defines the State size we wish for Brazil, and the GDP share it can control. Once approved (translator’s note: the PEC 55 was approved by the Congress on the 13^th December), the amendment will establish a state direct control of 35% of the GDP. In the medium and long terms, another decision will have to be made. It is about what our society believes is the focus of public expenditure, defining what needs to be reduced or cut. As economist Bernard Appy said recently, it is not enough to decide what is priority, you must define what is not. In this case, non-priority costs must be reduced to allow for other spending.

Contrary to the common sense, in Brazil the assistance policies are not the ones that draw most public money. As many studies have indicated, in order to embrace certain groups with its resources, the government has a bias towards medium and high classes, top public servants and a few business groups.

The “turnstile effect” of public policies and group interests is largely prevailing in Brazil. That is, after these policies fulfil their role in generating benefits for a certain group, they are very difficult and costly to eliminate, even when they are not able to provide any outcome for society. The build-up of decisions that once made, cannot be reverted puts Brazil among the places where state intervention in economy is not capable of producing lesser social inequality or more economic efficiency. On the contrary, it ends up generating more concentration of wealth, having regressive effects of not complying with collective gains.

In this background, it’s ironic that some left-wing groups keep advocating limitless public spending and, on the other hand, right-wing groups insist that the Government has been created according to socialist ideas. The lack of data about the role of the state in the economy and income distribution has been taken public opinion to a schizophrenic level.

It would have been more socially just and politically acceptable if the PEC 55 did not postpone all debate around the costs of the adjustment.  The public spending with shockingly privileged groups could have been restrained. For example, the remuneration of selected groups of public employees, either still working or retired, can be as high as R$80,000, when the vast majority of retirees receive an average salary of R$1,100.

The NGO Todos pela Educação (All for Education), suggested that the PEC could have stated that, in case of low inflation and higher tax collection, the credit would go to investments in education. On top of indicating a priority, that would be an affirmative action about the government intentions for the sector – though the same NGO admits that the Brazilian government spends around 23% of the net revenue from taxes in education, above the minimum amount of 18% established by the Constitution.

Unfortunately, the Government opted not to include these kind of measures. That is not supposed to mean that the PEC55 makes no sense or is unnecessary, but decisions around a new arrangement in public expenditure will occur in years to come, and that is a very important step.

Ricardo Sennes is a managing partner at Prospectiva and a specialist in political and economic scenarios, the formulation and implementation of public policies, and the evaluation of their impacts on companies. He has experience in industrial policy, industrial promotion, and international integration. Sennes possesses a doctoral degree and a master’s degree in political science from the University of São Paulo (USP) and serves as the general coordinator of the university’s leading international affairs think tank (Gacint). He is currently a non-resident partner of the Atlantic Council’s Latin America program, a member of FIESP’s Council of Strategic Affairs, and a member of the council overseeing of the journal Foreign Affairs (Mexico and the United States).