Fiscal Consolidation and Institutional Reforms in Brazil

Transcription

1 Comisión Económica para la América Latina - CEPAL Fiscal Consolidation and Institutional Reforms in Brazil Pedro Jucá Maciel Subsecretário de Planejamento Estratégico da Política Fiscal Tesouro Nacional Santiago, March 23th 2017

2 2 Outline Recent developments and challenges to the Brazilian fiscal policy Reforming fiscal institutions The importance of the Social Security Reform Recovering growth: initiating a new virtuous cycle

3 3 Outline Recent developments and challenges to the Brazilian fiscal policy Reforming fiscal institutions The importance of the Social Security Reform Recovering growth: initiating a new virtuous cycle

4 Brazil is facing one of the worst economic and social crises in its history GDP per capita (in thousands R$, 2016) 36,0 Combined with: 34,0 32,0 30,0 28,0 26,0 24,0 24,1 24,6 24,3 24,0 24,7 24,7 25,1 25,1 26,2 26,7 27,5 28,8 29,9 29,6 31,5 33,4 33,3 32,4 32,7 31,8 30,4 Double-digit inflation (improving recently) Double-digit Unemployment Worsening fiscal position 22, Source: IBGE

5 The lack of structural reforms have led the expenditure to the unsustainable path 21,0% 20,0% 19,0% 18,0% 17,0% Central Government Primary Revenues and Expenditure (as % GDP) 20,2% 18,8% 18,8% 19,0% 18,9% 18,9% 18,5% 18,5% 18,7% 18,0% 18,1% 18,1% 18,0% 17,7% 17,3% 17,4% 17,3% 16,8% 16,9% 16,4% 16,5% 16,4% 16,2% 17,3% 16,7% 16,9% 19,3% 19,8% 17,4% 17,3% Brazilian fiscal problems are not only temporary, but structural 16,0% 15,6% 15,6% 15,9% 15,1% 15,6% 15,0% 14,0% 14,2% 14,0% 14,8% 14,6% 14,8% 13,0% 12,0% Despesa Expenditure Total (%PIB) Receita Revenues Líquida Total (%PIB) Source: IBGE

6 The size of these imbalances requires a medium-term consolidation plan 4,0 2,0 0,0-2,0-4,0-6,0 Public Sector Primary Balance, Overall Balance and Interest Payments (as % GDP) 4,0-1,5-2,3-6,1 Overall balance reached 10.7% of GDP deficit in Restoring confidence, since then, has reduced the cost of the debt. -8,0-8,5-10,0-12,0 Source: Banco Central do Brasil Overall Balance Interest Payments Primary Balance -10,7

7 Fiscal imbalances have increased indebtedness levels rapidly Public Sector Gross Debt (as % GDP) Need to address a fiscal consolidation strategy dez/06 dez/07 dez/08 dez/09 dez/10 dez/11 dez/12 dez/13 dez/14 dez/15 dez/16 Source: Banco Central do Brasil

8 Indonesia Dominican Republic Pakistan Venezuela Kazakhstan Iran Libya Philippines Peru Egypt1 Malaysia Angola India Thailand Mexico Saudi Arabia Chile Colombia China Algeria Uruguay South Africa Russia Romania Ecuador Argentina Brazil Turkey Ukraine Poland Croatia Hungary There is limited room to raise taxes in order to correct fiscal imbalances 50,0 45,0 40,0 35,0 30,0 25,0 20,0 15,0 10,0 5,0 0,0 Tax Burden (as % GDP) 25,8 27,7 27,9 28,4 29,9 31,0 31,2 31,7 32,5 32,6 14,1 14,6 15,3 15,8 16,0 16,0 18,0 19,3 19,6 20,3 20,8 21,0 21,4 22,3 22,6 23,2 23,3 38,1 39,3 36,6 44,2 45,6 Brazil has one of the highest tax burdens among developing countries Source: IMF

9 There is also limited room to raise indebtedness and to postpone fiscal adjustments 50,0 40,0 30,0 20,0 10,0 0,0 Gross Debt (as % GDP) 100,0 92,7 94,6 Brazil has one 90,0 86,8 of the highest 75,3 77,7 78,3 indebtedness 80,0 63,7 64,4 66,1 68,5 levels among 70,0 developing 60,0 countries 51,7 51,8 52,4 56,0 56,6 46,3 47,5 43,6 26,3 27,5 31,7 32,8 33,4 35,8 39,6 39,7 13,0 14,1 17,1 20,4 21,4 Source: IMF

10 10 Outline Recent developments and challenges to the Brazilian fiscal policy Reforming fiscal institutions The importance of the Social Security Reform Recovering growth: initiating a new virtuous cycle

11 The role of the Constitutional Amendment 95 (approved in 2016) Objectives: start the process of fiscal consolidation by limiting growth rate of expenditures. The expenditure cap will make the public sector able to achieve better fiscal balances and to stabilize the growth rate of debt without the need to increase tax burden. Expenditure limit determination: (1 + 7,2%) (1 + CPI junho 2017 %) (1 + CPI junho 2018 %) (1 + CPI junho 2019 %) Basis 2016 Limit 2017 Limit 2018 Limit 2019 Limit 2020 Applied only to the Central Government Minimum constitutional amount of expenditure related to health and to education sectors will be observed. There are exceptions to this limitation: Subnational transfers Unexpected expenditures (Créditos Extraordinários) Elections Raise capital through state companies

12 The benefits of the expenditure cap to the fiscal framework Reduce pressure to raise taxes and create distortions in the tax system Reduce debt and interest payments Being the anchor of the Brazilian Medium-Term Fiscal Framework Improve the role of the Congress in defining the allocation of the budget and in making the multi-year fiscal space clear to the public Restore the discussions of improving effectiveness of the public programs Create political room to implement structural reforms Primary Expenditures with and without the Cap (as % GDP)

13 Ongoing effort needed to implement the New Fiscal Regime (Expenditure Cap) Approve structural reforms in order to control mandatory spending and budget rigidities Enhance strategic and medium-term focus of fiscal policy and budget process Improve macro-fiscal forecasting (baseline and alternatives) Promote procedural changes in the budget process to support the rule (New Public Finance Law) Develop a expenditure review focusing on the large and fast-growing programs Improve transparency

14 Developing the Federal Government Monitoring and Evaluation (M&E) System Presidential degree will regulate this system Establish procedures to be followed by line ministries in order to create new programs Define guidelines and procedures to make ex-ante and ex-post evaluations of programs Develop public investment projects database managed by the Ministry of Planning Improve information sharing related to program evaluations among government agencies Integrate the Monitoring and Evaluation System to the budget process

15 There are clear signs of potential efficiency gains among government programs PISA score vs investment per student Source: World Bank

16 16 2 There are clear signs of potential efficiency gains among government programs Incidence Index of Social Programs in Brazil (in %) 60% 50% Pensions Labor Programs Social Assistance Programs 57% 40% 30% 20% 10% 0% 35% 35% 37% 32% 34% 28% 20% 22% 24% 25% 22% 23% 24% 24% 25% 21% 23% 17% 20% 20% 18% 20% 20% 18% 14% 12% 13% 14% 14% 14% 10% 11% 7% 4% 2% 26% 26% 24% 19% 19% 10% 12% 3% 3% Source: World Bank Q1 Q2 Q3 Q4 Q5

17 17 2 There are clear signs of potential efficiency gains among government programs Education sector incidence indicators Source: World Bank

18 18 Outline Recent developments and challenges to the Brazilian fiscal policy Reforming fiscal institutions The importance of the Social Security Reform Recovering growth: initiating a new virtuous cycle

19 Social security reform: demographic perspectives Population Aging 65-year old or more population/working-age population 39,0% 28,7% 8,7% 11,5% 15,3% 21,5% In 2015, 8 working-age adults in relation to each 65+ person In 2040, 4 working-age adults in relation to each 65+ person Fonte: IBGE

20 Social Security Spending (in % as GDP) Social security reform: international comparison Itália 14 França Áustria Grécia Brasil Portugal Polônia HungriaEslovênia Finlância Bélgica Espanha Alemanha Japão 8 Turquia Luxemburgo Rep. Tcheca Estônia Suécia 6 4 Chile Irlanda Israel EUA Suiça Reino UnidoDinamarca HolandaNoruega Nova Zelândia Canadá Austrália 2 México Coreia do Sul Islândia Fonte: IBGE Depedence ratio (% 65 year Pop. /working-age population)

21 Social security: baseline expenditure projections (no reform) 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% ,95% Private Sector Social Security System Expenditure (as % of GDP) ,20% 0% Fonte: Ministry of Finance

22 22 Outline Recent developments and challenges to the Brazilian fiscal policy Reforming fiscal institutions The importance of the Social Security Reform Recovering growth: initiating a new virtuous cycle

23 Economic growth recovery in Brazil: initiating a virtuous cycle Sustainable growth path: Crescimento Growth Ajuste Fiscal Fiscal consolidation Confiança Confidence Taxa Interest de rates juros Investimento Investment e Crédito and credit

24 Economic growth recovery in Brazil: initiating a virtuous cycle Fiscal Consolidation 1. Expenditure Ceiling (EC 95/2016) Ensure fiscal long-term fiscal sustainability and reduce the pressure to increase tax burden. 2. Social Security Reform Convergence to international standards and guarantee solvency of the system. 3. Expenditure Review Improve expenditure allocation and public policy effectiveness 4. New Public Finance Law Review and update all the procedures related to the budget process. 5. Establishment of the Fiscal Independent Institution at the Senate 6. Strengthening Fiscal Responsibility Law and Regulate the Federative Fiscal Council 7. Review the system of guarantees related to subnational governments indebtedness Productivity Improvement Agenda 1. Tax Reform Simplify, increase efficiency and reduce justice litigations 2. Strengthening infrastructure regulatory framework 3. Bureaucracy reduction and administrative Reform Focus on essential activities of the public sector in order to provide services to citizens Reduce operational rigidities and provide instruments to public managers Result oriented administration 4. Improve business environment 5. Strengthening governance and compliance among state companies and public pension funds 6. Concessions and privatizations 7. Labour law modernization 8. Increase foreign trade

25 Fiscal Consolidation and Institutional Reforms in Brazil Pedro Jucá Maciel Subsecretário de Planejamento Estratégico da Política Fiscal - Tesouro Nacional pedro.juca@tesouro.gov.br Gracias!