In his book “Six Crises”, he recounts six situations he went through when he was Dwight Eisenhower’s vice president — some of them unusual, such as when, during a visit to Venezuela in 1958, an angry mob attacked his limousine a few months after the fall of the US-supported dictatorship of Marcos Pérez Jiménez. But what interests us here is that in the book Nixon argued that the defeat of the Republicans in 1954, 1958 and 1960 was due to the poor performance of the economy in election years. The notorious fiscal conservative argued that to win elections it is necessary to expand spending in an election year. On this, Nixon and they agree.
Dilma expanded spending by 15% in 2010, also an election year. , in turn, even defaulted on court orders in 2022. The recognition of fiscal policy electoral cycles led to an international wave of constitutionalization of budgetary rules, as shown. But some of them, like the so-called framework, go in the opposite direction to what was expected: they are a license to spend, not a harsh fiscal constraint.
There is no mystery about the impasses in the current dispute over the Budget. This is not about the Executive Branch being hijacked by the Legislature or anything like that. Or structural changes in coalition presidentialism. The elementary fact is that the Executive and Congress respond to opposing political incentives, which turns the Budget into a field of dispute. And this interaction or game between the two powers depends on parameters. And here there was a change in the parameters due to a shock in the political system.
This shock was the cataclysm produced by the tariff policy and its interference in Bolsonaro’s trial. The result, as we know, was the strengthening of the Executive due to the effect of national unity around sovereignty that it engendered. Lula, who was on the ropes and facing successive defeats in Congress and therefore becoming a lame duck, reversed his decline in popularity. The game got tougher. The voting score made this clear.
Congress’s reaction to the tax hike MP repeats the behavior that led to the overthrow of the IOF in June. What is at stake here are unfettered spending that the Executive can make in an election year when congressional leaders aligned with rival presidential candidacies impose obstacles to increasing revenue. At the same time, the congressional majority is also seeking re-election, which turns the Budget into a field of dispute, in a zero-sum game. Due to its composition, Congress has imposed, over the last decade, a strong asymmetric fiscal restriction on governments: a veto for increasing the Executive’s free revenue, but not for expenses of interest to the legislative majority.
There is no virtue in this game. In reality, it is based on an unsustainable dynamic imbalance. The Executive continues its expansionist fiscal policy that began even before taking office with the transition PEC and without changing the exemptions and benefits account. The expansion of resources to states and municipalities and through credit is unprecedented and creates a paradoxical situation with Selic at 15%, while credit and spending expand rapidly.
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