ETCO and Fipe take a radiograph of public spending

Source: ETCO Magazine, No 18, January 2011

Public spending“The very news of the deficit, which had afflicted me so much, now seems to me that I haven't even read it. Really, if I do not have to cover it, why put the deficit among my concerns, which are not few? If there was a balance, would the State come and share it with me? ”


The words of the chronicler Machado de Assis were written in the early years of the Republic, in August 1892, shortly before the dismissal of Rodrigues Alves, when he occupied the Ministry of Finance for the first time. Alves had been fighting to combat the public deficit and, for that, introduced a 50% surcharge on all customs tariffs, by far our most important tax at the time.
But our major chronicler seemed not to be concerned. It wasn't quite like that, however. Machado de Assis dedicated several of his chronicles to the topic and with a few more years of fiscal mismatch the chronicler began to realize that the bill had ended up falling into his arms, via taxes, higher cost of living or even a non-payment of the service in public debt policies. . “The taxpayer is me, it's you” was the title of the chronicle that Machado de Assis wrote in 1897 and that deals with the fiscal subject in its entirety.
The idea that fiscal adjustment is necessary to achieve population well-being, stability in the economy and sustainable growth has spanned centuries. But the consensus around the label does not necessarily correspond to an agreement around the content. Each participant understands public spending in their own way.
The elected president, Dilma Rousseff, inherits this historical problem, but whose analysis is of crucial importance in the definition of public policies. In a country with a superlative tax level, increasing taxes, as Rodrigues Alves and many other public managers have resorted over the last few centuries, seems out of place. The way then is to rationalize public spending.
As it understands that the question of the quality of spending is a relevant topic in the discussion of the Brazilian public sector, ETCO commissioned researchers from USP's Institute for Economic Research (Fipe) to study “Quality of public spending in Brazil: Suggestions for improving public policy results, without increasing taxes ”.
"It is necessary to seek more efficiency in the use of public money", says Professor Andre Montoro, Executive President of ETCO. Public spending should aim at improving citizens' quality of life. And, judging by the results presented by the researchers, it is not necessary to raise taxes to meet these needs.
The study shows that it is possible to do more with less or more with it. One way is to create models for managing and monitoring public spending, suggests Professor Helio Zylberstajn, from Fipe.
According to him, Brazil spends a lot (in relative terms) on education, but the results are meager. There is certainly room to improve results with the same level of expenditure.
According to a survey by the Zylberstajn team, in a group of selected countries, which spend 3,7% to 8,8% of GDP on education, Brazil appears in the same range as those that spend the most, with 6,6% of national income. A similar finding holds true for other sectors, such as health and safety.
The possibility of maintaining the results of current policies or improving them and, at the same time, reducing public spending would create relief for companies and citizens. Private savings could be used for more noble purposes than simply financing public debt. In particular, savings could be channeled towards productive investments, which are so necessary to maintain economic growth. To increase the efficiency of spending, it would be necessary to define, very strictly, the focus of public policies, directing the public services that the population needs for a real overcoming of their problems. The study identified that the effect of government spending also depends on factors external to the programs. For example, a population's education level can interfere with the outcome of a public health program. For this reason, public policies should emphasize preventive objectives, seeking to correct the causes of the problems so that they can be discontinued, when the causes have been resolved. The most characteristic examples of preventive spending are certainly in the area of ​​education, sanitation, infrastructure, as they make viable and create better conditions for countries to develop and, consequently, acquire greater capacity to solve economic and social problems. .
Better management of public spending is at the heart of an efficient fiscal adjustment, which provides conditions for the effectiveness of macroeconomic policy. A simple tax reform, however appropriate it may be, runs the risk of providing momentary relief, when possible, followed by increased spending and a new imbalance, basically the same result of previous successive attempts since the time when Machado de Assisi wrote for one of the three main newspapers in the country at the end of the XNUMXth century.


Public spending


Diadem turns the tide

There was a time when the residents of Diadema stumbled across bodies every day on the way. The city of São Paulo seemed more like a stage of civil war. And it actually was, judging by the reported homicide numbers. There were 111 murders per 1.000 inhabitants in 1999, a rate almost four times higher than what the UN considers a state of civil war. But against all predictions, Diadema turned that around. In just over ten years, the municipality left the position of leader of the ranking of the most violent city in Brazil to become a reference in public security policy.
Without additional resources, the city reaped the results of a significant change in the way public resources were handled. José de Filippi Junior, former mayor of Diadema, says that the tipping point in the city's security occurred when the city government invested in intelligence work and not merely in a repressive policy. The incidence of crimes was then mapped, crossing this information with the areas of social vulnerability and the presence of bars. The survey pointed out that 60% of homicides would occur near establishments that served alcoholic beverages in the period between 23 pm and 4 am.
With these data in hand, a bill proposing the closure of bars in that time interval was approved by the City Council. Inspection to ensure compliance with the law also received special attention. At the same time, assistance programs were created in areas such as health, education and leisure, in the neighborhoods with the highest crime rates.
These initiatives brought down the statistics of violence. In 2007, 80 homicides were registered in the city, less than 20 per 1.000 inhabitants. Today, according to city hall surveys, 93% of the population does not want the bars to reopen at night.
There was a brutal economy in the health area with accidents and homicides related to alcohol consumption. The saved resources were redirected to preventive health programs.
The security climate attracted investments to the city. The return on business investments, in turn, caused a jump in the budget. And so, Diadema started his virtuous circle.
Diadema is an example, but there are others that point to a change in the mentality of some public officials who are exchanging the culture of raising the tax burden for a more efficient management of available resources.
Professor André Montoro, Executive President of ETCO, says that he saw in Hamburg, Germany, a successful case of what was conventionally called a “management shock”. The city had an honorary mayor. He was responsible for the political role of negotiations and the establishment of priorities for the administration of the municipality. “And there was a professional responsible for managing the projects and the public machine,” says André Montoro.
A similar experience occurred right here in Brazilian lands, in 2003, when the then governor Aécio Neves took command of Minas Gerais for the first time. He implanted a “management shock” and handed over the project's coordination to Antônio Anastasia, then vice-governor and elected in 2010 to succeed Aécio in government.