Government counts on uncertain tax collection increase to zero deficit

The preview of the 2024 Budget shows that the federal government’s plan to eliminate the primary deficit next year depends on an atypical and uncertain revenue growth. To guarantee a neutral result, it would be necessary to increase revenue by R$ 155 billion next year.

Faced with a current expectation of a deficit of R$ 107.6 billion in 2023, the economic team established as goals, in addition to a neutral primary result for next year, a surplus of 0.5% of the Gross Domestic Product (GDP) in 2025 and 1% of GDP in 2026. There is a fluctuation band of 0.25 percentage points for the target result each year.

For this, the Minister of Finance, Fernando Haddad, promised to launch a series of “remedial measures”, which would raise revenues by up to R$ 150 billion per year. Among them would be the taxation of electronic sports betting, which would have the potential to guarantee around BRL 15 billion, the end of the exemption from IRPJ and CSLL on subsidized amounts of ICMS for funding (up to BRL 90 billion), and the fight against evasion of import tax on purchases on e-commerce platforms (BRL 8 billion).

Added together, the announced initiatives would reach a maximum of R$ 113 billion. The estimated value, however, has already been reduced, since the government backtracked on the idea of ​​taxing all remittances of international purchases. The idea was to end the tax exemption on orders of up to US$50 sent by an individual to an individual, but the plan was disallowed by Lula after the negative repercussions.

On the other hand, the government achieved its first victory in court on the issue of funding subsidy. On Wednesday (26), the First Section of the Superior Court of Justice (STJ) unanimously decided that the Union may charge IRPJ and CSLL on grants via ICMS. The effects of the decision, however, were suspended by Minister André Mendonça, of the Federal Supreme Court (STF). The issue should be analyzed by the other ministers of the Court in May.

Economists predict rising tax burden

The need to raise tax collections extraordinarily was one of the obstacles pointed out by economists when presenting the general lines of the proposal for the new fiscal framework, at the end of March. Faced with skepticism regarding the Minister of Finance’s promise to revoke tax benefits for large companies, the conclusion is that for the projected numbers to be credible there will inevitably be an increase in the tax burden.

“My preliminary assessment of the data is that, if the government intends to reach the primary result targets, it will require a massive increase in revenue. Not only in 2023, but throughout 2024, 2025 and 2026”, evaluated economist Marcos Mendes, associate researcher at Insper, to the newspaper “O Estado de S.Paulo”.

“It is clearly an adjustment model on the revenue side, allowing expenses to continue growing. In 2026, revenue will have to be around BRL 370 billion, BRL 380 billion above what it is today. The tax burden in Brazil is already high. There’s not a lot of room to grow,” he said.

In the presentation of the Budgetary Guidelines Bill (PLDO) for 2024, the Minister of Planning, Simone Tebet, said that the Treasury is responsible for reviewing tax incentives, whose cost is estimated at BRL 400 billion per year to the Union.

“We know that there is no shortage of tax exemptions, some legitimate, others without benefit to Brazilian society, which are the so-called ‘tortoises that climb trees’ whenever a measure is approved in Congress”, he said. “There is an estimate that just from the benefits, apart from the financial one, from tax waivers, we released BRL 400 billion.”

The attempt to revoke at least part of the tax benefits, however, has not been successful in recent governments, given the pressure from the sectors contemplated.

Government promises “practically constant” measures to collect more

The government does not hide that it will make an intense search for new revenues. And the numbers quoted are superlative. Last Wednesday (19), for example, Tebet stated that the fight against tax evasion and smuggling could increase revenues by R$ 120 billion starting next year. The following day, the executive secretary of the Ministry of Finance, Gabriel Galípolo, stated that the collection measures “will be practically constant” in order to meet the fiscal targets.

According to the PLDO, considered a preview of the Budget, the net primary revenue, minus transfers to states and municipalities, should be R$ 2.159 trillion next year – with the same amount of expenses for zeroing the primary deficit.

The numbers, presented by Tebet on Monday (18), however, do not take into account a real readjustment of the minimum wage, which is projected at R$ 1,389 for 2024, only contemplating the correction by the INPC.

In order to guarantee Lula’s campaign promise of an annual increase in the salary floor, it would be necessary to raise even more revenue, or to fail to meet the target of a neutral primary result.

“The president will not break a campaign promise”, said Tebet in the presentation of the PLDO, referring to the real increase in the minimum wage. “How much will depend on approval of the framework,” he explained.

In addition, there are a series of expenses that will not be covered by the new fiscal rule, such as expenses with extraordinary credits, as already occurred in the expenses ceiling; contribution to non-dependent state-owned companies, with the exception of public banks; some transfers to municipalities; transfers to federal entities to pay for the nursing floor, among others.

“The fact that the projection does not take into account the real readjustment of the minimum wage, one of the main political flags of the government, indicates a low probability that there will be, effectively, at the end of 2024, a primary deficit equal to zero”, said Marcos Mendes, from Insper.

The text of the project was prepared based on the spending ceiling, a fiscal rule currently in force, but provides for an amount of R$ 172 billion more in expenses that are conditional on the approval of the proposal for a new fiscal framework.

According to Tebet, if the new set of rules for public accounts is not endorsed by the National Congress, “all social programs would be compromised”. She mentioned, among the destinations of the conditioned resources, the Minha Casa, Minha Vida program, the maintenance of the federal road network, the development of Basic Education, grants from the Coordination for the Improvement of Higher Education Personnel (Capes) and the Popular Pharmacy.

The spending ceiling, in force since 2017, prevents real growth in expenses, only allowing the correction of expenses in the annual Budget by the inflation of the previous year. The Lula government’s proposal for a new fiscal framework, in turn, guarantees real growth equivalent to 70% of the increase in revenues.

Although the rule proposed by the government establishes a slower pace of growth in expenses in relation to the increase in revenues, a minimum percentage of real increase in expenses is foreseen, of 0.6% above inflation in 12 months, for periods of low growth or drop in revenue.

The complementary bill of law for the new fiscal framework, delivered to the Legislative on the 18th, establishes that the President of the Republic must give explanations to Congress in case of non-compliance with the fiscal target. But it does not provide for the imputation of responsibility for a crime or more rigid punishment to the Chief Executive.