Every change of government always brings a certain amount of insecurity and distrust. And this happens quite often in Brazil.
The result is that while the new government does not signal some guidelines, the market becomes suspicious, holds back investments, and leaves the environment for undertakings a little tense.
This was how Brazil was at the beginning of the year. And my intention here as a founding member of the BICC is not to pass judgment on the government, but rather to show that, from now on, the environment for entrepreneurship in the country begins to improve.
Why does the business environment tend to improve?
When the current government took over Brazil, a PEC called the Transition PEC was approved, which authorized off-budget spending of approximately R$ 200 billion.
The purpose of this PEC is to ensure that families who receive the Bolsa Família are not left without support, and in addition, it also covers other social expenses.
Despite the intention being good, this created a certain fear in relation to the public accounts and consequently made the market retreat in investments. The government then promised that it would present a new fiscal framework.
Because although there is already a spending ceiling, it has not proved to be very efficient in recent times, after all, the ceiling was breached both in the previous and current governments.
What changes from now on?
The new fiscal framework needs to be presented to Congress, but it changes the rules of the Expenditure Ceiling. Until then, public expenditure could only grow through inflation.
Now, they are linked to the fundraiser. This means that regardless of inflation, government spending may increase by 70% of the amount collected.
For example, if there is an increase of BRL 100 million in the collection volume in one year, the amount of expenses may increase by BRL 70 million in the following year.
Furthermore, the calculation of the new framework does not apply to health and education, after all, spending on these areas is already regulated by the Federal Constitution.
According to the Constitution, the Union is obliged to invest at least 15% of its current revenue in health and 18% in Education.
Therefore, this shows that from now on if the economy is doing well, the government can spend more and consequently stimulate the country’s economy.
Is this fiscal framework good?
From what I’ve read about it, the framework isn’t the best. After all, in years where collections are lower and inflation is higher, expenses are even more limited.
However, it brings security to investors, as it shows that Brazil is committed to fiscal adjustment and does not intend to spend more than it collects.
Once entrepreneurs have this security, the economy’s basic interest rate can fall, the market stabilizes and employment grows again.
This means that despite the ideologies, after the approval of this framework by Congress, we will have a little more optimism in relation to the future of Brazil.
Even though I am an entrepreneur here in Ireland, I have investments in a lot of startups in Brazil, and I am happy to see that the country is committed to creating an environment that is more conducive to investment and entrepreneurship.
I’m following along to see how the congressional approval will now be, and how the government will conduct its talks with the Central Bank. All I want, however, is to see my country grow again and generate jobs and income for everyone!
