Despite approval from Congress, Haddad remains far from the 2024 target

Even with the approval of most of his fiscal adjustment package by the National Congress, the Minister of Finance, Fernando Haddad, maintains uncertainty among economists about meeting the target of zeroing the primary deficit in 2024.

The dehydration of projects by parliamentarians and the risk of judicialization of tax collection measures go against the economic team’s projections for an improvement in the fiscal framework from next year. The economic slowdown should worsen the scenario, limiting the vegetative growth of revenues.

Economic analysts disagree regarding the size of the hole that the federal government will need to cover, but there is practically a consensus on the impossibility of balancing the accounts in the next fiscal year.

To end 2024 with a neutral primary result, the Ministry of Finance hoped to secure R$168.5 billion in additional revenue from actions that depended on the approval of the Legislature. The Independent Fiscal Institution (IFI), a body linked to the Senate, estimates that, of this amount, only R$48.6 billion must be guaranteed.

In a more pessimistic scenario, the entity predicts extra revenue of just R$30.9 billion. Even in the most optimistic scenario, revenue would rise by less than half the amount desired by the Treasury – R$70.1 billion, equivalent to 42.4% of the R$168.5 billion needed to eliminate the primary deficit.

The Tendências consultancy calculates that the measures to increase revenue approved so far guarantee R$42 billion. Economist Felipe Salto, former Secretary of Finance and Planning for the state of São Paulo, estimates that the additional revenue will be around R$56.2 billion, or a third of what the government has programmed.

At the beginning of November, analysts consulted by the Central Bank (BC) said they considered R$81 billion of Haddad’s economic measures in their projections of the central government’s net revenue for 2024. The amount, equivalent to 48.1% of what the minister aimed for, refers to the median projections of 90 economists who responded to a questionnaire sent by the monetary authority.

For the IFI, the biggest frustration for the government should come from the resumption of the so-called quality vote in the Administrative Council of Tax Appeals (Carf), a measure that would guarantee the Union an additional R$ 97.9 billion next year, in the calculations of the department headed. by Haddad.

The law that returns to the government the prerogative of resolving disputes in Carf, the administrative body for tax disputes, was approved by Congress at the end of August and sanctioned by President Luiz Inácio Lula da Silva (PT) in September.

The IFI, however, considers, in its base scenario, the possibility of collections in the order of just R$30.3 billion, around 10% of judgments favorable to the Union in 2018 and 2019, the two years immediately preceding the change that Withdrew the casting vote on Carf from the government.

“Decisions made by the council do not constitute the last instance of judgment, it is up to the taxpayer to discuss in court the tax credit that is maintained in the body”, emphasize the institution’s economists.

“With the return of the pro-Tax deciding vote, in the event of a tie in the judgment, the charge is maintained, and the Union can legally charge the taxpayer in case of non-payment of taxes. This credit is included in the active debt, which may affect the Union’s balance sheet. The situation does not, however, constitute immediate primary revenue for the central government”, explains the IFI text.

Another revenue that the institution considers overestimated is that resulting from the approval of provisional measure (MP) 1,185, which changes rules on the incidence of PIS and Cofins on subsidies granted by states through the ICMS. Endorsed by the Chamber of Deputies, the MP conversion project was voted on and approved by the Senate this Wednesday (20).

The Treasury expects to raise R$35 billion more with the changes, which include the end of the exemption from federal taxes on state incentives used for funding purposes. The IFI, in turn, projects only R$3.5 billion, or 10% of the amount expected by the government.

The removal of ICMS from the calculation basis for PIS and Cofins credits, as a result of MP 1,159, would generate a potential revenue of R$57.9 billion in the economic team’s accounts, but only R$5.8 billion in the base scenario of the Senate body for monitoring public accounts.

“The amounts considered by the IFI are justified due to the high uncertainties associated with the materialization of these revenues, as they are subject to the pacification of legal arguments between taxpayers and the Union”, explains the entity. “The possibility of legal disputes surrounding these theses and the values ​​involved is high.”

While the government’s proposals run the risk of frustrating official revenue estimates, measures that increase spending or reduce revenues appear as additional obstacles for the Finance Minister in pursuing the target.

The overturn of Lula’s veto on the extension of payroll tax relief for 17 sectors, for example, is expected to impact the Union Budget for next year by R$10 billion. Extending the benefit to municipalities will cost another R$9 billion in lost revenue, according to calculations by Felipe Salto.

Salto, who is now chief economist at Warren Investimentos, calculates that the central government’s primary deficit should be around 0.95% of the Gross Domestic Product (GDP) next year. The IFI projects a negative result of 1.07% of GDP.

Among the analysts consulted by the BC for the latest edition of the Focus report, the median primary result is -0.8% of GDP. According to the rules of the new fiscal framework, the fiscal target would still be met next year if the primary result is negative by up to 0.25% of GDP.