An Iron Straitjacket of Austerity for Brazil

Brazil’s unelected president is pushing for a radical and dangerous fiscal austerity measure, writes João Sette Camara: a constitutional amendment which would not allow the national budget to increase for a generation.

On October 10th 2016, the Brazilian Congress, on a preliminary vote, approved PEC 241, a constitutional amendment the provisional federal government claims is Brazil’s only way out of the huge budget crisis the country faces. Two votes in the senate and another vote in the lower house remain before the amendment would be approved.

The attempt to change the Constitution proposed by the Government aims to put a brake on the ever growing public expenditure and to try to balance the public accounts, establishing a new fiscal regime. The idea is to set, over the next 20 years (with the possibility of changing the rules after the first 10 years), a limit for public expenses: the Government’s budget for one year will have to be the same budget as the year before, corrected by the inflation index. Therefore, if the project is approved in 2017, the budget the Government will have to spend will be the same as in 2016, with the value of the inflation for that year added to it. The measure will affect the three branches of Government: Executive, Legislative and Judicial, and in the long run, it will mean serious cuts in investments in crucial areas for the country, like Education and Health Care, not to mention the minimum wage.

The controversial proposal is widely supported within the Government, who calls the measure “The Responsibility Amendment”. Fortunately some legislators oppose it, calling it “The Cruelty Amendment”, or “The amendment of a Government without its people”. As it was well noted by newspaper El País, apart from facing direct opposition within the lower house, formed by almost 100 of the 513 congressmen, the Government of Michel Temer will have to confront other interests as well, like those of the Office of the public prosecutor [PGR], and the Superior Court of Justice. On the evening of October 9th, some 17 congressmen took part in a dinner at the Government Palace in order to discuss the issue. It was the acting president’s attempt to gather his allies, show his strength, and try to get the lower house to vote the project early the next Monday, October 10th. All Congressmen were invited to this dinner, including the opposition. The dinner menu included items the average Brazilian has only seen on TV, like salmon and mushroom risotto. The Government refused to reveal the cost of this dinner, where no Congressmen from the opposition showed their faces, according to those who dined with Temer.

A Jornal do Brasil piece states that the PGR’s Secretary for Institutional Relations sent the Congress an official technical statement against PEC 241. According to the document, the changes the Government wants to implement to the Constitution are blatantly unconstitutional, because they interfere with the autonomy and independence of the Legislative and Judicial branches, with the autonomy of the Federal Public Ministry and the other institutions of the judicial system and, consequently, with the constitutional principle of the separation of the three branches of Government. According to the PGR, this is reason enough to cancel the project or rewrite its text.

Michel Temer and his Minister of the Treasury say that if this dreadful packet of measures isn’t approved as they want it, Brazil will crash. Entrepreneurs say that if the project is not approved as the Government is proposing, Brazil will crash. On TV, there is now always some analyst saying the same: if the project is not approved as it is, Brazil will crash.

But the problem always lies in the perspective. From the point of view of the poor, Brazil will crash if this project is approved and the State is not able to guarantee a minimum of quality of life to millions of people who already struggle to survive and if the State is only concerned with generating revenue in order to pay the interests of the national public debt.

Instead of promoting a national debate about which should be the State’s priorities and how we should solve our structural problems (which would be the least one should expect of an acting government whose government plan was not democratically elected), what Temer is trying to do is to reduce the size of the State in a very short period of time.

Within this important discussion over how to fix the problem with the public accounts, the government is unfortunately focusing on the economic aspects rather than the social ones. It almost seems that we live in a country where finance is at its core, not the people. T, scholars, investors, entrepreneurs and many authorities are quick in saying that the Brazilian State won’t be saved if PEC 241 is not approved right away. The project intends to keep Government expenditure in the same level as 2016 for an entire generation and then some. The only thing the Government needs to explain is in which state the actual Brazilians will be by the end of those 20 years of austerity measures.

The discussion is now primarily about the figures that point to a balance over the years in the relationship between the national public debt and the GDP, a crucial element for the country to balance its accounts. But in this discussion people are failing to consider the role of variables that are essential for the creation of public policies to promote the welfare of the people and to combat poverty and inequality, which are historical problems Brazil only started to address with the governments of Dilma and Lula. The growth of the population over these next 20 years, and their needs in terms of health care, education and social assistance were simply not accounted for. Just like the contribution to the State owed by the rich, who always seem to be surrounded by privileges. If Brazil needs to generate revenue to balance its accounts, a good way to start would be to increase the taxes payed by the wealthy, who pay in taxes to the government the same 27.5% of their income as the middle class.

João Sette Camara