Impacts of the new fiscal regime on health and education.

Correspondence P. Rossi Rua Lauro Pimentel 914, Campinas, SP 13083-250, Brasil. [email protected] The New Fiscal Regime proposal put forward by the Temer administration proposes a rule for primary Federal Government expenditures for the next 20 years, alterable – restricted to the correction factor – in 10 years. This proposal was approved as Constitutional Amendment Proposition 241/2016 (PEC 241) in the House of Representatives and is now under appreciation in the Brazilian Senate as PEC 55. Under its rules, federal expenditures, minus interest payments on the public debt, will be limited to the previous year’s expenditures adjusted by the accumulated inflation, measured by the Extended National Consumer Price Index (IPCA). In short, the New Fiscal Regime will lead to an actual federal government budget freeze, which presupposes a reduction in public expenditures relative to Gross Domestic Product (GDP) and to the number of inhabitants. That is, according to the proposed rule, public expenditures will not follow the growth in income and population. In this short article, we will address two aspects of this proposal. The first is its macroeconomic impact, taking into account the fact that the new fiscal regime presupposes a scenario of fiscal austerity over the next 20 years. The second is its impact on federal education and health spending. We will show that (i) the proposal will not lead to economic growth and (ii) will substantially reduce health and education spending. Twenty years of austerity