The Hidden Cost of Spending Outside the Constitution

Fiscal rules may discipline public debt, but they are not enough if observed public spending continues to weaken legality, efficiency, and civic trust.

THE HIDDEN COST OF VIOLATIONS OF THE CONSTITUTION
Institutional Inefficiency:
The trap of being unable to stop always doing the same thing
By Dr. Nelson Jorge Mosco Castellano

Uruguay faces a challenge that goes beyond the economic cycle: the gap between the letter of our Constitution and daily political-administrative practice.
We often focus the debate on the Fiscal Rule —an undeniable institutional advance from the previous period— but we usually overlook that its success does not depend only on compliance with debt ceilings, but on the quality and legality of the spending financed by that debt.
“Unconstitutional” spending in our country is not a ghost; it has names and surnames in the reports of the Court of Accounts (TCR).
It appears mainly through the figure of expenditure reiteration, a mechanism that allows authorizing officers to ignore observations of illegality and move forward anyway.
This administrative “shortcut” has a tangible cost that compromises our fiscal sustainability and, fundamentally, our social fabric.
The X-Ray of Observed Spending
If we analyze the data in detail, the volume of expenditures showing legal defects —violations of constitutional Article 211 or of TOCAF— is alarming. In critical sectors such as ministries, departmental governments, and certain decentralized services, lack of budgetary availability or omission of competitive bidding processes is commonplace.
We estimate that, in a national budget of approximately US$ 20 billion, observed expenditures represent between 5% and 8% of total executed spending.
Sixty-three percent of public spending is allocated to operating expenses; 30.8% goes to salaries, and barely 6.2% to investment.
Any normal company would already have gone bankrupt.
Although not all observed spending is “wasted” money —the service is usually provided— the lack of competition inherent in unjustified direct purchases generates an inefficiency overcost of at least 15%.
The Impact on Debt and the Private Sector
The current Fiscal Rule focuses on the level of net indebtedness. One out of every three pesos spent by the State goes to interest payments on debt.
Therefore, every peso wasted in a flawed administrative process is a peso the State must go out and seek in the financial market. Lenders become partners of every worker, entrepreneur, and national investor.
This inefficiency is not neutral; it is financed through tax pressure that ends up suffocating the private sector.
This suffocation translates into a vicious cycle with devastating consequences:
Destruction of Formal Employment: Companies, besieged by costs that do not correspond to efficient services, see their capacity to hire employees and invest in development limited.
Evasion as Survival: Informality and tax evasion emerge not as a choice, but as the only alternative in the face of a state burden that does not return value. On the contrary, it becomes a double imposition: paying for a useless public service while also paying for a private one to replace it.
The Diversion of Resources and the Social Crisis
The most serious issue is that this drain of resources —which we estimate at US$ 2.3 billion per government period between direct savings and avoided debt interest— leaves the State without tools to address the real national emergencies.
Every dollar wasted in spending observed by the TCR is a dollar that does not reach the sectors trapped in structural poverty or help reverse an educational deficit that mortgages the future of young people.
The result of this administrative negligence is an evident social fracture: the increase in deviation toward crime and an exponential growth in the prison population, which today survives in inhumane conditions as a consequence, precisely, of that lack of strategic resources.
Toward a Reform of “Agency” and Transparency
For the Fiscal Rule to be truly effective, we must shield spending from its origin.
This requires a constitutional reform that penalizes violations of the limit placed on the discretion of reiteration and embraces technologies of radical transparency, such as blockchain or auditing through artificial intelligence agents.
We cannot allow the Uruguayan citizen to continue paying the very expensive “inefficiency tax,” which condemns all of society to live in the desperation of covering obligations imposed by a political system distorted from what the Magna Carta requires.
The adjustment must not fall on people’s well-being, but on the vices of an administrative system that has grown accustomed to living outside its own Constitution.
Every time the sovereign —the citizenry— was consulted on political overspending and encroachment by discretionary power, it responded with good sense. Later, its decisions were violated, and now there is an attempt to repeat the dish.
Only by returning to the social contract that limits the whims of the ruler will we ensure that public spending is restricted to actions of national interest, and that the debt ceiling ceases to be a goal of resistance to the “generosity” of the lender and becomes instead a platform for solid, human, and transparent growth.

Public spending legality
Limits of fiscal rules
Social cost of inefficiency

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