Government could have “very serious” consequences on accounts in 2024, says IFI in the Senate

The executive director of the Independent Fiscal Institution (IFI), Marcus Pestana, warned this Tuesday (10), in the Senate, of the need for Brazil to make an “adjustment effort” in order to avoid “very serious consequences” in public accounts next year.

The statement was given during a work meeting at the Economic Affairs Committee (CAE), in which Pestana highlighted concerns regarding the fiscal imbalance in the country. According to him, an adjustment is necessary to avoid the worsening of public debt and its consequences for next year.

“Brazil would need to produce a primary surplus of 1.5% of GDP [Produto Interno Bruto]. However, since 2014, with the exception of 2021, we have produced deficits. And everything indicates that this year’s rate will be between 1% and 1.4%. The zero deficit target for 2024 is a challenging objective,” he said.

Pestana mentioned legislative proposals being processed in Congress that reflect the country’s concern with the fiscal issue, including tie-breaking votes in the Administrative Council for Tax Appeals (Carf), a new fiscal framework and tax reform. And he emphasized the consensus in Brazil that fiscal responsibility is essential for sustainable development, and that lack of fiscal control leads to consequences such as inflation, high interest rates, unemployment, recession and increased debt.

For Marcus Pestana, this lack of control “forms a vicious circle that does not free the country for a positive and virtuous process of sustained and inclusive growth”.

Vilma da Conceição Pinto, director of IFI, added that Brazil experienced a reversal in the fiscal surplus trend in 2022, due to factors such as the commodity shock caused by the war in Ukraine and a recomposition of expenses at the beginning of President Lula’s term. She explained that this reversal is due to “reduction in revenue, and the increase in primary expenses generates an imbalance in short-term public accounts”.

On the other hand, the president of the CAE, senator Vanderlan Cardoso (PSD-GO), considered the zero primary deficit target proposed for 2024 challenging and highlighted the importance of understanding Brazil’s fiscal situation to guide tax reform.

The meeting was only attended by opposition senators, including senator Rogerio Marinho (PL-RN), who expressed concerns about “barbering things” by the current government that suggest a more dramatic scenario than that presented by IFI representatives.

Marinho pointed out, in particular, a bill that links the growth of the minimum wage to GDP growth, which will probably affect public accounts, especially Social Security.

“There are a series of supervening factors that are not under our control, but are flagged. The government approved a bill that positively links minimum wage growth to GDP growth. This will certainly have an impact on public accounts, notably on Social Security,” he stated.

Other senators, such as Sergio Moro (União Brasil-PR), highlighted the increase in public expenses and the attempt to adjust through tax increases, emphasizing the need to cut expenses instead of increasing taxation, given the fact that the government “has increased the public sector”, he added.