Impact on public debt could be R$1.7 trillion, says economist

The federal government estimates a fiscal impact of R$111 billion per year if the so-called "bomb agendas" currently being processed in the National Congress are approved.

Among the proposals are the renegotiation of rural debts, the creation of a salary floor for doctors and dental surgeons and the granting of special retirement for community health workers and those fighting endemic diseases.

In an interview with CNN Money, the chief economist at Warren Investimentos, Felipe Salto, stated that a study projects that the accumulated impact of these measures could increase public debt by up to R$1.7 trillion in the long term.

According to Salto, the effect would be significant on a debt that already has a worrying trajectory.

"The fiscal impact of these agendas could be up to R$1.7 trillion over a longer horizon. In other words, the debt, which is already under considerable pressure until 2036, could be almost R$1.7 trillion higher", he stated.

Veto and judicialization
For Salto, although some of these proposals have political appeal and address demands considered legitimate, their approval without fiscal compensation would be incompatible with the situation of public accounts.

In the economist's assessment, if Congress approves the measures, the expectation is that the President of the Republic will veto the projects.

"If Congress continues to insist on these agendas and approve all of this, the president only has one option, which is a veto," he said.

Salto added that, if the vetoes are overturned by the Legislature, the issue could be taken to the Judiciary. As a precedent, it cited the Federal Supreme Court's decision on payroll tax relief, which reinforced the principle of fiscal responsibility and the need to indicate sources of compensation for new expenses or revenue foregone.

Fragility of public accounts
The economist also highlighted that Brazil faces a delicate fiscal scenario, worsened by uncertainties in the international economy, such as trade tensions involving the United States and the prolonged effects of the war in Ukraine.

According to him, the organization of public accounts is fundamental for defining economic variables such as interest, inflation and exchange rates.

Salto also noted that the Brazilian tax burden is already among the highest in emerging countries, while public spending continues to grow above inflation. Furthermore, the country's debt level exceeds the average of comparable developing economies by around 18 to 20 percentage points of GDP.

Although ruling out an insolvency scenario, the economist warned of the structural fragility of public accounts and defended the generation of primary surpluses as a necessary condition to stabilize and reduce the relationship between debt and GDP.

In his assessment, this movement would open space for lower real interest rates and greater economic growth.

"There is no way to have prosperity without adjusted public accounts", he concluded, reinforcing that fiscal adjustment is an inevitable challenge for the country.

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Source: CNN