Government counts on rare expansion in revenues to zero deficit in 2024 – 04/16/2023 – Market

The government counts on an above-average increase in net income, rarely recorded in history, to achieve a scenario of zero deficit in public accounts next year. The data considered by the government point to a real advance above 8% in 2024 (to BRL 2.1 trillion), while the National Treasury series registers an average real growth of 4.8% in the last 25 years.

The figures, sent by the government to Congress on Friday (14th) through the PLDO (Budget Guidelines Bill), show how much the fiscal plan of Minister Fernando Haddad (Finance) depends on an expansion of tax collection to seek rebalancing of public accounts – expectation of the economic team based both on an improvement in economic activity and on new measures to obtain revenue.

Felipe Salto, chief economist at the Warren Rena brokerage and former executive director of the IFI (Institução Fiscal Independente, Senate body that monitors public accounts), calculates that the net revenue projected by the government for 2024 represents a real growth of 8.4 % over the most up-to-date forecast for 2023.

According to Salto and analyst Josué Pellegrini (also from Warren), the expenditure foreseen in the PLDO was in line with their accounts (a real expansion close to the permitted ceiling of 2.5%), but the revenue came in R$ 130 billion above what they they were calculating.

“The improvement of the primary result, in 2024, will depend on a strong increase in revenues”, they say in a report distributed to clients. “It remains, however, to explain how to achieve this dynamic”, they say.

The National Treasury series shows that growth as projected by the government or above it has rarely happened. In the last ten years, only in the atypical year of 2021 – when it advanced 21% in real terms against a year earlier (in the midst of the post-stop recovery caused by Covid-19 in 2020).

In 2022 (the most recent year with closed data), there was a real growth of 7.74% in net revenue over a year earlier. In 2023, however, preliminary data point to stability – with the risk of even a decline.

The government’s projection for revenues has attracted the attention of analysts as it contrasts with the recent performance of activity and revenue. In addition to the GDP (Gross Domestic Product) considered by the government to be above the forecast by the market, there are signs of loss of breath in revenues month by month since the end of 2022.

Net revenue accumulated in 12 months has been slowing down since August. In that month, the indicator advanced 12.1% in real terms (against a year before). Afterwards, it reduced the increase to 11.8% in September, 11.4% in October, 10.3% in November, 7.7% in December, 6.0% in January and 4.2% in February (most recent data available).

“By our projections, until the middle of the year, also considering the accumulated calculation in 12 months compared to the previous 12 months, net revenues, already excluding concessions, dividends and royalties, should have a real drop of 0.7%”, say Salto and Pellegrini.

The scenario has been reinforcing among analysts the idea that new initiatives to zero the deficit in 2024 will be necessary. “Right now, the greatest uncertainty concerns the fulfillment of primary targets, which requires a substantial increase in revenues”, say Bradesco analysts in last week’s report.

Haddad announced that he intends to launch collection measures with the aim of boosting revenues by R$ 150 billion a year, which could, in theory, close the accounts for next year. So far, he has mentioned a set of three initiatives that, together, generate up to R$ 113 billion.

They are the taxation of the electronic sports betting market (from R$ 12 billion to R$ 15 billion), the new rules to prevent fraud on international retail platforms (from R$ 7 billion to R$ 8 billion) and the end of loopholes that allow companies to deduct federal taxes using ICMS benefits (R$ 85 billion to R$ 90 billion).

The secretary of the National Treasury, Rogério Ceron, also commented on an idea signaled by the government to close the siege against the use of tax havens by companies – although there is still no detail on how this will be done.

In the PLDO, the government mentions that the tax reform –expected to be voted this year– may have the effect of expanding tax collection. “The tax reform will be an opportunity to generate simplification and efficiency gains, and may even collaborate with the recomposition of revenues from its effect on growth after increases in expenses and tax exemptions implemented in 2022”, says the text.

Another point on which the government intends to change is spending on subsidies and tax exemptions, which will reach R$ 486 billion in 2024 in the Federal Revenue accounts. Haddad stated that he wants to implement, after the tax reform vote, a review of the measures that lead to this value.

The government recalls that obtaining revenue is not a necessary condition for the functioning of the framework itself. “It is not a sine qua non condition, the adjustment process continues its course regardless of the level”, stated Ceron in a recent interview with Sheet.

The attention on tax collection exists, in large part, when analyzing the feasibility of the government achieving the promised improvement in the primary result in the coming years (from the adoption of the new fiscal rule).

Even with doubts about the achievement of the scenarios outlined by the government, analysts have pondered that the new fiscal framework, in any case, tends to generate stabilization between revenues and expenditures in the medium term.

“Although the adjustment speed depends on the recipes, in the three scenarios presented [pelo banco] the rule contributes to a greater control of spending”, say Bradesco analysts.

They claim that it is necessary to wait, however, for the rule in detail and the announcement of new tax measures to define the fiscal scenario for the coming years. The presentation of the text of the new fiscal framework is scheduled for this week.

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Challenge for 2024

8.4%*
Real net income growth projected by the government in 2024

4.8%
Average real growth of net revenue in the Treasury historical series

BRL 2.149 trillion
Projected net revenue for 2024

BRL 2.149 trillion
Projected expenditure for 2024

Goal for 2024

• Inferior limit: deficit of BRL 28.7 billion (or 0.5% of GDP)
• central target: BRL 0.0 (or 0.0% of GDP)
• Upper limit: surplus of BRL 28.7 billion (or 0.5% of GDP)

Sources: Ministry of Planning and Budget and *calculation by Warren Consultoria.