Extra revenue from 2023 to 2025 should be 50% lower – 05/26/2023 – Market

The measures intended by the federal government to increase collections in the coming years and comply with the new fiscal framework should generate an extra revenue of BRL 63.4 billion in 2023, below the BRL 135.2 billion projected by the Ministry of Finance. The estimates are part of the June IFI (Independent Tax Institution) Fiscal Monitoring Report.

The government foresees an extra collection of BRL 645 billion in the period 2023-2025. The IFI estimate points to a value of R$ 305 billion in the period.

The institution does not have, for example, PIS/Cofins resources on ICMS credits expected for the three years. It also estimates a much smaller amount with IRPJ/CSLL (taxes on corporate profits) on tax benefits from the state tax. These appeals are linked to court decisions whose results are still uncertain.

According to the institution, the collection gains would continue in the following years, although there are uncertainties in relation to obtaining collections in the amounts foreseen by the Federal Revenue Service.

“The IFI considers the impact resulting from these judicial decisions to be very uncertain and difficult to predict. In addition to the difficulty in estimating the amounts involved, the possibility that the current legal disputes will extend over the next few years constitutes another factor of uncertainty”, says the report.

The IFI forecast for net income is 17.9% of GDP in 2023 and 18.3% of GDP in 2024.

This is the first analysis released after the approval of the new fiscal framework by the Chamber, last Tuesday (23). The text still needs approval from the Senate before going to be sanctioned by President Lula (PT).

IFI’s assessment is that the new fiscal framework provides greater flexibility in relation to the current spending ceiling, created in 2016. It also seeks to meet the principles of ensuring debt sustainability and having incentives for compliance with the rules. However, it is extremely complex.

“The international literature reinforces the importance of simple fiscal rules, but the new fiscal framework proposed by the government proved to be very complex”, says the institution in a report signed by IFI director Vilma da Conceição Pinto.

The complexity of the tax rule and the dependence on funding sources, which have not yet been presented, increase the risks of non-compliance with the proposed rules, according to the director.

IFI projections point to a government primary deficit of 1% of GDP in 2024. An additional effort of at least 0.8 percentage points would be necessary for the target to be reached next year.

The end of the systematic payment of precatories is also seen as a factor that increases the risk of non-compliance with the rule.

In the report, the IFI projects GDP growth of 1.0% in 2023 and 1.4% in 2024.