Contradictions of the Fiscal Council on the suitability of spending under the magnifying glass

This week, the Fiscal Council (CF) issued a statement in which it demanded “the urgency of establishing a new medium-term fiscal framework”, through the design of a bill that establishes the course of the framework to which the country is compromises. This, after, for example, the Government minted, last Thursday, December 23, DU No. 112-2021, in order to grant an extraordinary bonus to administrative and health care personnel, within the framework of the health emergency. The cost of this measure is S / 374 million.

The CF considered “worrying” that the Government authorizes greater public spending based on emergency decrees, picking up that they are a bad practice that “does not agree with the current fiscal institutionality”. In addition, he recalled that this type of modification must be reviewed in Congress before being signed into law.

The declaration comes on days when the MEF announces an annual closure with the highest public investment in its history. When the 2021 budget was made, the fiscal deficit was projected to be 6.2% of GDP, but in the end it will be 3%, with one of the highest growth rates in Latin America and the largest deficit reduction in the entire region.

Created in 2013, the Fiscal Council –ascribed to the MEF– Technically and independently analyzes the government’s macro-fiscal policy, with non-binding opinions on compliance with the rules of the Law for Strengthening Fiscal Responsibility and Transparency (LFRTF), forecasts of the Multi-year Macroeconomic Framework, evolution of public finances and methodology for the calculation of the structural accounts of the LFRTF.

Statement caused surprise

Government sources described the event as “surprising”, since the three decrees issued in recent months had the sole purpose of reactivating the economy with priority to the most vulnerable families.

“We do not agree with what the CF said. On the one hand, it says that the fiscal institutionality is not respected, but, on the other, that it is up to Congress to evaluate the relevance of the DUs. All DUs are evaluated by the legal advisory offices of the MEF and the Minjus. We are in one of the worst crises in our history. If this is not an emergency, then what if? “, Said the source.

Likewise, it is criticized that it is the first time, “with this new administration”, that the CF tries to refute this type of decrees, issued by various circumstances since the virus arrived.

Replicas after statement

The CF’s pronouncement has aroused discrepancies. For the economist Eduardo Recoba, iForex correspondent, the observation is unsupported because, precisely, the figure of modified budgets allows governments to maneuver funds in the face of unforeseen emergencies. In addition, he stressed that panic is generated at a time when “no economist could speak of a fiscal farra” with a 3% deficit forecast for 2021.

“It must be recognized that he has been the only minister who, in the last 20 years, has played an active role in increasing tax pressure. It generates a lot of suspicion that in moments of so much noise about a possible replacement for Francke, a statement is issued that replicates the lobbying practices of private unions, “he said.

For his part, the economist José de Echave stated that the DUs approved by this management have been designed in “consonance with the Constitution and the current fiscal institutionality.” In this sense, he specified that the CF has not taken into account the MEF’s motives for the issuance of these items, which allow addressing urgent and necessary situations both at the health and reactivation levels.

“The idea is to incorporate more resources into the public budget through supplementary credits, and this responds to a situation that is unpredictable, as is the subject of the new variant. These are regulations of a transitory nature, no one says that this is going to be the MEF’s management style. They are valid and directly benefit the population, “said De Echave.

Emergency fiscal measures

The Fiscal Council is made up of economists Carlos Oliva (former Minister of Economy during the government of Martín Vizcarra and today on the board of the BCRP), Javier Escobal, Eduardo Morón (president of the Peruvian Association of Insurance Companies-Apeseg), Gabriel Rodríguez and Patricia Tovar.

When the emergency began, the fiscal rules applicable to the Non-Financial Public Sector for the years 2020 and 2021 were suspended, in order to better cope with the crisis.

The word

Eduardo Recoba, iForex correspondent

“The CF statement generates unnecessary panic. Nobody, at this moment, could say that there is a tax spree. With a 3% deficit at the end of the year, it is impossible for the tenor of the statement to be so bold. “

Respect the fiscal institution

Kurt Burneo, Catholic Centrum

There are enough controversies now to include one more, around the discussion of the relevance of the DU, and that is clearly indicated by the Fiscal Council. For the sake of respect for the institutionality, I think it would be very correct for the MEF to take the indications into account. The purpose of these resources has been to attend to the bonuses of the health sector, that is not in discussion. The issue is how. I assume that having the resources as soon as possible has prevailed, but I think it would not hurt for them to realize, on the side of the Executive, that these types of decisions have to go through Congress. All DUs are audited by the Constitution Commission, so that, in the not so distant future, there may be some revisions on the action if it is pointed out that it was not appropriate to make expenses on the basis of a decree or a bill . The fiscal institutionality must be respected.