The tax rule ranked first in the chapter on the economy when the Executive Power made public the content of the Urgent Consideration Law (LUC) in 2020. The tool —to which six articles of that law refer— it is designed to control the growth of public spending adjusted for the economic cycleand it is one of the central bets of the government of Lacalle Pou within the new fiscal institutionality.
Its three pillars are the structural fiscal result, the variation of the net debt and the ceiling for the annual growth of primary spending, that is, before interest, for which quantitative goals are established that have been met in the first two years of validity. .
In the government they define it as a structural reform that aims to provide sustainability to public finances. It is also argued that the rule allows “increasing spending on social policies in extraordinary situations, without the need to resort to an increase in taxes or excessive indebtedness that compromises public finances in the future,” according to the Ministry of Economy and Finance. .
As in other issues of the LUC, it has also been a point of marked differences between the government of the multicolored coalition and the opposition of the Broad Front (FA).
On several occasions, the Minister of Economy, Azucena Arbeleche, He mentioned that the rule “is not a magical instrument, but it is a good sign” of discipline that “has been absent” in previous administrations of the FA when there was a sharp deterioration in public accounts. The government official has also pointed out that the fiscal rule is “flexible”, but with “rigid compliance”, with “political commitment” to improve the results of public finances.
Before the fiscal rule was approved, there was a debt ceiling law – in force since 2006 – which, in the opinion of the minister, “did not operate” as a fiscal restriction, to the extent that Parliament approved new debt increase ceilings on several occasions using the majority that the FA had, as he said during one of his presentations in Parliament.
2.1% is the long-term annual growth rate of the economy estimated for the 2021-2030 period, according to the Committee of Experts created by law within the framework of the new fiscal institutions.
In the opposition one of the most critical with the issue has been Senator Mario Bergara. The former Minister of Economy has made observations such as that the goals are “indicative” and “There are no consequences of non-compliance.”
“I can interpret it as the need to raise a signal. But it is an indicative goal, it is not the definition of a goal on which there is some kind of consequence later. From there we began to suspect that this is not really a fiscal rule, ”he said in May 2020 during a Senate Special Commission.
In 2021 the fiscal rule was fulfilled in its three pillars. The structural result included in the Rendering of Accounts was a deficit of 3.2% of GDP and finally it was 2.6%.. The growth ceiling primary expenses was 2.3% and finally it was 1.7%. And the debt ceiling that was
US$ 2,990 million stood at the end of the year at US$ 2,563 million. In this case, the authorities made use, with the endorsement of Parliament, of the safeguard clause that enables a 30% increase in indebtedness in extraordinary situations, such as the pandemic, and that was finally partially used.
“For the second year in a row we met the three fiscal objectives that we had set for ourselves reaffirming the credibility in fiscal matters”, Arbeleche stated last February when he defended the government’s economic course.
In the FA, the fiscal rule is viewed as a “cut” instrument that is the “base” and “foundation” of the fiscal adjustment, and that is considered, has been proposed for the current government period. For Senator Daniel Olesker, the rule “limits” and “reduces the role of public social investment under the argument of achieving balance in public accounts.”
“All public policy is a victim of fiscal adjustment and this is the result of the application of the fiscal rule”Olesker wrote in a column published long ago by the Socialist Party.
In addition, it is considered that the indebtedness law already operates as a fiscal rule. Through this mechanism, Parliament places a limit on the government’s ability to finance a fiscal deficit —either through indebtedness, the use of reserves, or monetary issuance—, although it then has ample flexibility to approve diversions.
For its part, the PIT-CNT has questioned the “overcompliance” of government goals. A report by the Cuesta Duarte Institute indicated that in 2021 there was a reduction in State spending cIts main source was the decrease in resources allocated to the remuneration of public officials.
To this was added a reduction in the purchasing power of pensions and pensions “even the most depressed”, which contributed to lower expenditures towards these items, according to the PIT-CNT. “The saving is also explained by the cut verified in the items destined for sensitive items from the social point of view, such as education and housing, questioned that report.