Federal government closed 2023 with a deficit of R$ 230.5 billion, the 2nd in history

The federal government’s accounts closed 2023 with a negative result of R$230.5 billion or 2.12% of GDP, according to a report released this Monday (29) by the Treasury. This is the second biggest hole in history, second only to that recorded in 2020, of R$ 939 billion – the year in which public expenses soared with the fight against the Covid-19 pandemic.

The primary deficit results from a sharp increase in expenditure, combined with a drop in revenue. In the year to December, net revenue, after constitutional transfers, fell 2.2% in real terms (already discounted for inflation. Meanwhile, public spending increased 12.5%.

Part of the result is due to the advance payment of court orders. Without counting this issue, the negative balance would be R$138.1 billion – the worst since 2019, not counting the year of the pandemic. It is this value that will be considered for the purposes of the government’s fiscal target, since the Federal Supreme Court (STF) authorized the regularization of the stock of court orders outside the target and spending limit.

In his first speech as minister, on January 2, 2023, Haddad stated that he would not accept “a primary result that is not better than the absurd R$220 billion deficit foreseen in the Budget for 2023”. At the time, the minister had not yet considered regularizing court orders.

Even excluding court orders from the account, however, the primary result was worse than predicted by Haddad on different occasions last year. At the end of June, for example, he declared that the deficit would be close to R$100 billion for the year, around 1% of GDP.

The numbers released this Monday reflect the results of the National Treasury, Social Security and the Central Bank. Treasury and BC recorded a surplus of R$75.7 billion and Social Security. a deficit of R$306.2 billion.

According to the Ministry of Finance, part of the result arises from compensation to states and municipalities for the losses they suffered with the ICMS reduction approved by Congress in 2022.

States and municipalities appealed to the STF against a proposal from the government of Jair Bolsonaro (PL), approved by Congress, which created the “ICMS ceiling” for essential products such as fuel and electricity.

“If the tax effects of LC No. 201/2023 are still deducted, resulting from compensation and indemnities to states and municipalities for tax waivers carried out by the federal government in 2022, the deficit calculated would total R$ 117.2 billion or 1.1% of the GDP”, says the Treasury report.