Campos Neto: Brazil has little maneuver in terms of revenue – 12/19/2023 – Market

Brazil has little room for maneuver to implement measures that result in additional revenue, said this Tuesday (19) the president of the Central Bank, Roberto Campos Neto.

The declaration was given at the end of a year in which the government of Luiz Inácio Lula da Silva (PT) obtained support from the National Congress for a series of measures in an attempt to boost federal revenues in 2024.

“When we look at the space in this exchange relationship between growth and revenue, between the possibility of correcting the tax through revenue, we see that Brazil has less space”, said Campos Neto in a debate promoted by the newspaper Correio Braziliense.

“We have a relatively low per capita income for a tax burden that is relatively high. So, it shows that there is little room for maneuver in terms of additional revenue,” he added.

The excessive dependence on revenue to reconcile the real increase in spending allowed by the new fiscal framework and the fiscal targets outlined by Minister Fernando Haddad (Finance) has been the target of criticism from financial market agents and also from members of the National Congress.

For representatives of these groups, there is a limit to what can be approved to increase the Union’s revenue. On the other hand, there are demands for the government to address the issue of public spending.

In his presentation, Campos Neto did not make reference to specific measures, but said that the uncertainty surrounding the sources of additional revenue to meet the fiscal targets stipulated for 2024 onwards “is a little what causes, let’s say, a little more nervous.”

“If the country’s growth surprises upwards, there is a multiplier that makes it collect more. But if Brazil does not grow to the point of generating this extra revenue, where would the additional revenue come from? You can always cut expenses, which in Brazil it is difficult to do, or there would have to be additional fundraising measures”, he stated.

Meanwhile, the central government’s total primary expenditure (which includes the National Treasury, Social Security and Central Bank) continues to rise. In 2023, spending should experience real growth, above inflation, of 9.1%, according to market estimates. In 2024, even with the new fiscal framework, the real increase should reach 3.7%.

When the comparison is expanded to general government expenses, which includes states and municipalities, the real increase is 13.8% in 2023 and 1.7% in 2024. In the consolidated biennium, the increase is 7.7 %.

“This is well above the average for the emerging world. When we look at the comparison of Brazil with the average for Latin America, we see that Brazil is well above in the 2023-2024 biennium. When we extend this to 2027-2028 , remains above every year, even meeting the target, which is something that the market finds difficult to happen”, observed Campos Neto.

The BC president also highlighted that Brazil will exit a higher level of debt in 2023, compared to countries such as Chile, Peru, Colombia and Mexico. The debt trajectory is also steeper, signaling an upward trend, while in other economies the expectation is for stabilization or reduction.

“Even with the fiscal framework, the fiscal situation in terms of debt trajectory is a little worse,” he said.

Campos Neto added that, in this context, further expanding Brazilian debt to stimulate the economy could be counterproductive.

“Obviously this [trajetória de alta da dívida] it is easily reversed if growth begins to emerge. Now, we have to understand that growth needs to be growth that generates efficiency, growth that has more factors that stimulate growth from the private world. Taking on debt to grow is not necessarily something that will lead to a much better balance down the road,” he said.

Despite these considerations, the BC president reaffirmed that analyzes of the fiscal scenario do not have a mechanical relationship with decisions on interest rate policy, a message already conveyed in different statements from the monetary authority.

He also noted that there is a “big difference” between the government’s goals and the markets’ forecast for the result of public accounts, but, even in this context, the “important thing is to persevere”.

“We know it’s difficult, I think everyone knows, even today the market expectation is not that we will reach the [déficit] zero, but it is important to persevere”, he said.

Carrying out reforms, according to him, can “partially” compensate for the bad perception about public accounts. On the other hand, he presented a series of graphs to illustrate the reasons why the fiscal factor is today a major concern for economic agents.

At the same event, the executive secretary of the Ministry of Planning and Budget, Gustavo Guimarães, defended the spending review agenda, which has been pushed by the department.

“A fiscal regime is not enough to control expenditure. We have to work from within, review what may no longer be necessary,” he said.

The secretary argued that the results obtained until December 2023 indicate a better situation than that imagined a year ago, in December 2022, still during the government transition. “We are better than the situation was expected,” he said.