The Central Bank raised interest rates again, and this time. Meanwhile, the Lula government is preparing some spending cuts to calm the financial market. The combination triggered a wave of lamentations on the left.
Philosophers, sociologists, historians and others condemn the idea of lowering social spending. And they complain about what they consider to be “protection” of financial expenses, of interest on public debt, “which benefits the big rentiers”.
One or another is capable of saying that “almost half of the revenue” is allocated to interest and debt amortization, a confusion that may be the result of ignorance or bad faith. If complaints like this come from former ministers, from people who worked in the government and should know how things work, it is worth paying extra attention.
Interest is not to blame for the loss of public accounts. At least not because of the primary deficits with which the country has been living since the Dilma government. In fact, the problem is that it is partly to blame for the rise in interest rates.
The difference between primary expenses and financial expenses
We can divide public spending into two main categories: primary and financial.
The expenses that matter for the fiscal target are the primaries. In other words, non-financial, which are not related to public debt. Among the largest are pensions, civil service salaries, assistance benefits, unemployment insurance, salary bonuses, machine costs and ministries’ investments.
Primary revenues pay for primary expenses. Non-financial ones. Essentially, the collection of taxes (taxes, fees, contributions) and also money from concessions, royalties, dividends from state-owned companies.
When primary revenues are greater than primary expenditures, the government has a surplus of money called primary surplus. This is what happened every year until 2013. This surplus was used to pay part of the interest of the debt. Past commitments. Kind of like someone who takes advantage of a surplus at the end of the month to pay off a debt that was left hanging.
What the Union recorded from 2014 onwards – with the exception of 2022 – was primary deficit. In other words: primary spending has exceeded revenue for a decade. What the government receives from taxpayers (and from concessions, royalties, dividends) does not cover day-to-day expenses, and it is necessary take on new debts to cover everyday expenses. Like someone who borrows money to pay the rent.
And then we come to the financial part. To the financial expenses are essentially the payment of interest on debt, while financial revenues are the money raised by issuing bonds by the government.
For 2025, for example, the government plans to spend almost R$1.7 trillion on refinancing public debt. Where will this money come from? According to the budget project, the issuance of bonds. The so-called scrolling. Swapping old debt for new debt.
Someone can take this expenditure of R$1.7 trillion, compare it with the total revenues expected for 2025 (R$5.7 trillion) and conclude that the interest on the debt will consume 30% of tax collection. But it’s not true. The R$1.7 trillion, as mentioned, will come from debt issuance. Not taxpayer money.
How much of the tax collection will go towards the debt? The same as in nine of the last ten years: not a cent. Because the government forecasts a new primary deficit next year, of just over R$40 billion, according to the Budget. Again, it will borrow money to cover the hole.
Brazil has had nine primary deficits in the last ten years. None were caused by interest
What happens when the government spends a decade spending more than it collects and is not convinced that it will reverse this situation? Debt financiers demand higher remuneration, as seen in the futures interest market.
And more: when the government helps fuel inflation. This leads the Central Bank – responsible for preserving the value of money – to raise the Selic, the short-term interest rate, which affects other rates in the economy.
But the left expects lenders to charge lower interest rates to those who cannot pay their daily expenses. They demand that the BC lowers the Selic with inflation reaching the target ceiling. And they insist that interest is to blame for the disarray of public accounts. When, in fact, the government’s finances are in the red even before interest payments are made. And a long time ago.
The primary deficits of 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021, 2023 and 2024 were not caused by interest, for the simple fact that interest does not even enter this account. If by magic the public debt disappeared, all these gaps would have existed in the same way – and caused new debts, in fact.
Much of the left ignores the primary result. The president of the PT, deputy Gleisi Hoffmann, defended by the Minister of Finance, Fernando Haddad. It’s easy: first, it says it’s okay to be in the red and borrow money to fill the hole; then, he complains about the debt, interest and creditors.
Of course, interest rates are a big problem. They are among the largest in the world. They make the public debt rise even more. They complicate the lives of people and companies. They harm the economy.
Is the financial market stretching the rope? Certainly. His own projections for the fiscal result are only a little worse than those at the beginning of the year, and at the time there was no uproar like the one seen in recent weeks. For those who bet on the rise of the dollar and Selic, there is nothing more convenient than seeing them rising.
The issue is that the left and a large part of the government, in their systematic opposition to fiscal balance, provide pretexts for the increase in exchange rates and interest rates. And with that they make the so-called “rentiers” happy.
Days ago, from the “conversations of the media and their economists” about the fiscal issue. The deputy is not obliged to listen to them. But it would be interesting to take a look at the “Introduction to Public Budget” booklet from the National School of Public Administration (Enap), a government body, which says:
“The primary surplus and deficit indicate whether public finances are in order, that is, whether or not the government is spending in accordance with its revenues.”
A decade of accounts in the red should be enough to conclude whether everything is in order or not.
