Author: Claudia Safatle

Source: Valor Econômico, 10/07/2009

The drop of 4,5 percentage points in the basic interest rate (Selic), from January until now, will generate savings of almost R $ 40 billion, in 12 months, with the payment of interest on the federal public debt. The government spent, in last year's salary negotiations that will be paid from 2009 to 2012, the equivalent of 80% - R $ 32 billion - of this revenue.

The calculations for the coveted Selic reduction money are done in a simple way, but arrive at a result very close to what will happen. The stock of LFT (National Treasury Bills) is R $ 500,77 billion (May data). Open market operations (with a maturity of up to 45 days) total R $ 384,74 billion. Thus, the sum of debt sensitive to Selic variations is R $ 885,5 billion. Each percentage point of Selic reduction, therefore, saves R $ 8,85 billion in the 12-month period.

As interest rates went from 13,75% per year to 9,25%, the government can count on a reduction of R $ 39,8 billion in spending on interest payments on federal securities. The impact of placing new papers at lower interest rates, in this calculation, is marginal. The increase in wages granted to all federal employees does not mean that new personnel spending is prohibited from now on. Although the Budget Guidelines Law stipulates deadlines for the approval of projects with new increases, the government can use creative means to continue raising this expense.

The bill that creates the Special Institutional Performance Bonus for employees of the National Department of Transport Infrastructure (DNIT) is an example of this new form of action in the Executive's human resources policy. If approved by Congress - it was sent in May - it will represent the payment, until July 2010, of an allowance for the 2.947 active servants of DNIT, as “overcoming specific goals”. As this proposal is outside of the LDO deadlines, the money will come out of the budget's funding. There are R $ 48.695,95 for higher level employees, R $ 20.856,19 for intermediaries and R $ 6.408,00 for auxiliary personnel, paid at once, at an estimated cost of R $ 55,96 million.

In the Legislative, there are a myriad of initiatives that increase the current spending of the Union, some even simple, such as the project that intends to pay an indemnity of R $ 200 thousand to all descendants of slaves in the country. As a universe of 80 million people of African descent is estimated, this gesture would cost R $ 16 trillion, about five GDPs. Other ideas, more dangerous due to the strength of the sponsor's lobby, are underway to reinstate benefits taken in the recent past, such as the constitutional amendment bill 210, which returns the payment of five years to judges and prosecutors.

This already receives pressure for the benefit to return to the other careers of the State. Estimated cost: R $ 13 billion. Spending on payroll is the most visible part of the increase in current expenses in recent years, but not the only one responsible. Personnel expenses plus charges reached R $ 168,9 billion this year (R $ 22,5 billion over 2008) and other current expenses, R $ 544,8 billion (R $ 54,6 billion more than in 2008).

The real growth in public spending in Brazil has been systematic since the early 90s. The entire fiscal adjustment from 1999 to the present has been made based on the increase in taxes. Even with all the tax exemptions granted by the government in the last three years, the tax burden continues to grow and reached, in 2008, 35,8% of GDP. In 1995, it was 27% of GDP.

This year, with the recession, it will fall, but it should rise again with the recovery of the economy in 2010. With the devastating effect of the global crisis on domestic growth, the government announced the adoption of an anti-cyclical fiscal policy, where the increase in the public spending would offset the decline in private production and its perverse effects on income and employment.

Countercyclical policies, however, have to work both ways: save on growth to spend in the recession. Spending on investments and not on costs and personnel, which are permanent expenses. Instead of using the resources of the Sovereign Fund, created exactly to do countercyclical action, this year the government chose to lower the primary surplus target and promote a cleansing of the methodology for calculating public accounts, in order to remove from the expenditure all that is PAC investment. He left the fund's money to spend in 2010, the presidential election year, when the economy should already be recovering. It will be a pro-cyclical fund.

The Executive's spendthrift, coupled with the recklessness of legislative proposals and the Judiciary's disregard for public spending, brings enormous concern about the future of fiscal policy and, consequently, with interest. Loosening one means tightening the other, if inflation is not to be increased. Net debt as a proportion of output will grow this year, according to official forecasts, to 42% of GDP, against 38,8% in 2008.

Government experts think it may even drop a bit in 2010, but it will grow again in 2011. The rigid spending already created will represent a damned legacy for the next president of the Republic, who will have to spend a good deal of his political capital to disarm the time bombs left behind.

Claudia Safatle is deputy editor-in-chief and writes on Fridays