New fiscal adjustment plan focuses on limiting spending and changes minimum wage rules

A new fiscal adjustment plan, prepared by economist Samuel Pessôa, proposes limiting the growth of public spending instead of cutting it directly, according to Estadão. The declared objective is to balance the government's accounts and make room for interest rates to fall, one of the central themes of the economic debate.

Pessôa is part of the FGV IBRE research team and also has a stake in BTG Pactual. The package contains nine items linked to the expense. The highlight is the change in the maximum limit for real expansion of spending foreseen in the fiscal framework, currently at 2.5%, which would increase to 1.5%.

Another proposal changes the minimum wage, whose real annual gain would be limited to 0.5%. The constitutional floors for health and education would also be changed: the health reference would become the index used in the framework, while the education reference would be corrected by the IPCA.

As for education, Pessôa maintains that the reduction in enrollments, resulting from demographic change, would open up space to increase the corrected disbursement per student without the total expenditure adjusted for inflation needing to grow.

In the same period, the interest debate gained a new chapter. According to Times Brasil, Lula (PT) is expected to meet in Brasília this week with André Lara Resende, one of the creators of the Plano Real, who today criticizes the management of interest rates by the BC. The meeting was revealed by columnist Lauro Jardim, from O Globo. In September, Lara Resende published an article in which she proposes ending interest rates that she classifies as absurd. In it, he maintains that high interest rates worsen public accounts and states that the Central Bank maintains the high rate based on an outdated vision of the economy. The data collected does not indicate that Pessôa's proposal is on the meeting's agenda.

Both sides agree that public accounts and interest are linked, but they differ on the starting point: does the path involve controlling spending or reducing interest?

What changes for the investor

If a proposal like this moves forward, the market's reading of the fiscal trajectory and the space for interest cuts could change, with possible effects on the interest curve, the exchange rate and the shares most sensitive to the basic rate. For now, however, this is a proposal from an economist, with no decision announced by the government. Anyone who follows the stock market, interest rates and the dollar must observe concrete signs of commitment to fiscal rules, and not just the design of the measures.

Automatically translated from Portuguese.