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Goldman Sachs On Fiscal Framework Bill

BRAZIL
  • The previous spending ceiling was a fiscal rule that kept central government primary spending growth constant in real terms. Given the new set of rules governing and limiting primary spending growth, Goldman Sachs believe the government proposed primary fiscal balance path (zero balance in 2024 and a surplus of 1% of GDP by 2026) will require a significant increase of the already high tax burden (with potential negative implications for growth, investment and inflation).
  • Furthermore, the proposed primary balance path does not stabilize the public debt dynamics, in their view.
  • In addition, complying with the primary spending limits, particularly in low revenue growth regimes, will be challenging given, among other things, inertial real growth in a number of federal spending programs (e.g., social security spending) and policy promises and spending commitments undertaken by the current administration.
  • In Goldman Sachs’ assessment, there is a good chance that Congress approves the new fiscal framework without major changes. Congress is, however, likely to resist and/or limit some of the proposed measures to increase the tax burden.
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