We need to restore the public nature of the budget.

The Brazilian economy is expected to stagnate in 2022, according to market expectations. The IMF predicts Brazil will have the worst GDP performance among the world's major economies. Furthermore, inflation is expected to slow down, but will remain above the upper limit of the target range in 2022.

The combination of a sluggish labor market and high inflation reduces workers' income. Even for formal employees, the starting salary in December 2021 fell, in real terms, compared to 2020.

Items that had a significant impact on the 2021 IPCA (Brazilian consumer price index), such as gasoline, are expected, along with other fuels, to remain high in 2022, given estimates of the price of a barrel of oil. Petrobras continues with its misguided policy of import parity pricing and the sale of strategic assets such as refineries, generating volatility and price increases. The average price of cooking gas exceeds R$ 100, and the gas voucher budgeted at R$ 1,9 billion will only cover 1/3 of the families receiving the Auxílio Brasil (Brazil Aid) program.

The adverse scenario for the Brazilian economy is likely to be reinforced by macroeconomic policy. The monetary tightening cycle, with the Central Bank raising the Selic rate, will affect economic activity. Even with the recent constitutional changes, fiscal policy will be contractionary in 2022. Combined, fiscal and monetary policies will reinforce the trend towards economic stagnation.

This shows that we are “in the worst of all possible worlds” regarding the fiscal framework. On the one hand, the rigidity of the spending cap leads to its continuous modification, undermining its credibility and impacting interest rates on longer-term bonds, as occurred in the second half of 2021.

On the other hand, even the "moving ceiling" and the withholding of court-ordered payments are not capable of creating fiscal space for strategic spending aimed at economic recovery. For example, in 2022, public investments are at a critical level, with a budget of R$ 42,3 billion, a real decrease of 53% compared to the amounts committed in 2014.

The federal health budget, even in the face of the advance of the omicron variant and the pressure on the public network, fell by R$ 12,7 billion compared to the sector's previous minimum, which was equivalent to 15% of the Net Current Revenue projected for the year.

In 2021, the gross debt of the general government decreased, but largely due to inflation behavior. For 2022, the increased cost of issuing bonds, the slowdown in inflation, the easing of the spending cap, and the stagnation of the economy will increase the debt as a proportion of GDP.

Given the continuous changes, the spending cap no longer serves as a fiscal anchor capable of generating credibility among economic agents. Nor do the flexibilities of the cap allow for room for social spending and investments. The fiscal and budgetary disorganization reflects the actions of the Bolsonaro government, dismantling state institutions and instruments for promoting well-being.

For 2023, it is urgent to reconnect the budget with the challenges of Brazilian society. We don't need to reinvent the wheel. We simply need to follow international literature and experience, producing a new fiscal framework that is more flexible and capable of stimulating spending with strong economic, social, and environmental returns, separating it from other expenditures. This idea was even defended by John Maynard Keynes, under the concept of capital budgeting, which would function as an instrument of countercyclical policy and smoothing of economic cycles.

Spending rules without a general budget freeze and the adoption of fiscal target bands (similar to the inflation target) would also be good alternatives to modernize our fiscal architecture. With institutional changes in the fiscal plan, it is possible to reconcile the stabilization of the debt-to-GDP ratio in the medium term with economic recovery, putting the country back on the path of development with social inclusion.

Restoring the public nature of the budget is part of the task of redemocratizing the country.