Papering over the evidence
On Friday, June 20, Folha de São Paulo published a piece pointing out that under Lula’s government, public spending has grown at nearly twice the pace of revenue. Hardly breaking news, as our readers can attest. Nevertheless, quick on the trigger, the Secretary of Economic Policy, Guilherme Mello, rushed out a clumsy rebuttal two days later—one that, if anything, only reinforces the article’s main points.
He attributes the increase mainly to expenditures tied to the so-called Transition PEC, which, conveniently enough, allowed for it. That merely identifies the source of the surge; it doesn’t deny it—after all, it’s a bit difficult to pretend it never happened. Conveniently omitted is the small detail that the current administration both proposed and championed said PEC; it’s as if the right hemisphere of the brain were blaming the left.
Not content with that, he doubles down with the usual empty chatter about how the New Fiscal Framework (NAF) is working splendidly, claiming the government managed to reduce spending between 2023 and 2024 without harming economic growth. What he doesn’t mention, of course, is that this supposed “spending cut” came from accounting roughly R$90 billion in expenditures (precatórios payments) on the very last business day of 2023. He even boasts that this maneuver had no recessionary effects in 2024—apparently forgetting that beneficiaries of these federal payments could only start spending this generous gift… in 2024!
Keeping with the spirit of mystification, he goes on to say that “the results since the implementation of the NAF have surprised most analysts.” Memory issues once again seem to prevent him from recalling that the original promise of the NAF was to eliminate the deficit in 2024, run a primary surplus in 2025, and stabilize the debt in 2026.
Instead, we got a deficit in 2024, the most recent budget review points to an even larger one in 2025, and no one’s seriously talking about debt stabilization anymore—at least not in any remotely realistic timeframe. If the NAF did surprise anyone, it seems to have been the very government that implemented it.
Meanwhile, as Mello celebrates this fiscal “surprise,” the Minister of Planning and Budget warns that “in 2027, whoever is the next president won’t be able to govern with this fiscal framework, these fiscal rules, without triggering inflation, public debt, and detonating the economy.” To be fair, despite her title, she hasn’t done, isn’t doing, and likely won’t do anything to plan for changing this situation—but at least she was infinitely more honest than her cabinet colleague.
In fact, the limits of the NAF didn’t wait for 2027. As noted, even the government’s own budget technicians admitted in last month’s revision that it’s impossible to hit the fiscal target (unless you conveniently exclude a few expenses—otherwise, the hole sits at around R$75 billion, according to official figures).
The whole mess surrounding the ill-conceived IOF hike and now the last-minute scramble to squeeze more taxes from society stems from a simple realization: the trajectory of spending and revenue can’t deliver the promised outcomes—not in 2025, and certainly not in time to stabilize the debt in any acceptable horizon.
It might be more productive if the Secretary spent his time figuring out how to fix the problem he helped create, instead of trying to rewrite reality in newspaper op-eds.
