Editorial: Fiscal Composure

12/31/2014 - 09h00

After a series of accounting maneuvers and last-minute legal fixes, the true scale of the damage to Brazil's National Treasury this year is unlikely to be known until the end of January.

Even without taking into account the duty on public debt, the government accumulated a deficit of US $6.9 billion from January to November, a shocking deterioration since 2011, when the government achieved a surplus of US $35.2 billion.

Given the lack of transparency with which the public finances have been dealt with, it is still uncertain what approach the outgoing economic team will take.

In the best hypothesis, all spending that has been planned will be completed, including those that have been postponed for months or even years.

However, there remains the fear that in order to present favorable accounts, the government will repeat the trick of transferring for the following year an increasing slice of its expenses, creating another obstacle on top of the adjustment planned for President Dilma Rousseff's second term.

The incoming finance minister, Joaquim Levy, will have to take the fiscal promises made by the government with a generous pinch of salt.

While the announcement of surplus targets equivalent to 1.2% of GDP in 2015 and 2% in 2015 and 2017 has been well received, it is not enough to restore the confidence of business leaders and investors.

Doubts also hang over the government's ability to increase tax revenues, and especially over the level of freedom the new economic team will be granted by the Rousseff administration.

The next hurdle is the estimate for 2015 revenue, which will be made in the budget announcement for the first two months of the year. The optimism that has persisted in recent years has served only as an excuse for an imprudent increase in spending.

One encouraging sign has been the adoption of growth estimates more in line with those of the market, in contrast with the unrealistic predictions that characterized the management of the outgoing finance minister Guido Mantega.

As much as possible, the balancing of the books should come from a range of different sources, such as excessive dividends of state-owned assets, or from programs which permit the payment of outstanding tax in instalments.

It will also be necessary to make bi-monthly budget reports relevant once more, as they serve an important function in identifying potential risks to the fulfilment of the established fiscal goals. Their effectiveness has been impaired by a lack of transparency in calculations of expenses and revenues.

These new habits will imply, at least to begin with, the announcement of bad news. This is, however, the only way to restore credibility. While it is still not possible to prove fiscal solidity, the government needs to keep its composure.

Translated by TOM GATEHOUSE

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	Sérgio Lima/Folhapress
	Brazil's Finance Minister Guido Mantega (R) shakes hands with the incoming Minister Joaquim Levy (L)