Government projects smaller-than-expected deficit in 2023 – 03/22/2023 – Market

The economic team has now decided not to include in the Budget an expense of R$4.5 billion to fund the additional readjustment of the minimum wage to R$1,320, already confirmed by President Luiz Inácio Lula da Silva (PT) and which will take effect in May 1st.

The maneuver contributed to further reduce the projection of the primary deficit, which fell from R$ 228.1 billion to R$ 107.6 billion.

Technicians and authorities heard by the Sheet on the eve of the JEO (Budget Execution Board), which took place on Tuesday (21), they stated that until then the estimate was that the deficit would be updated to around R$ 120 billion.

There was also a preliminary assessment that it might be necessary to block ministries’ expenses, which ended up not materializing.

The new projections were released this Wednesday (22) by the Ministry of Planning and Budget, after being previously approved by JEO. The collegiate is made up of ministers Rui Costa (Casa Civil), Simone Tebet (Planning), Esther Dweck (Management) and Fernando Haddad (Finance) —the latter represented at the meeting by the Secretary of the National Treasury, Rogério Ceron.

In a press conference this Wednesday, Federal Budget Secretary Paulo Bijos said that the reassessment of revenues and expenses for the first two months considered current parameters.

He mentioned that the SPE (Secretary of Economic Policy), linked to the Ministry of Finance, maintained in its projection grid the minimum wage forecast at R$ 1,302 – current value today, without the additional readjustment.

“If by chance there is a decision that this parameter will be considered in the second two months [cujo relatório é divulgado nos meses de maio]we will consequently consider the value in our projections”, said the secretary.

Bijos stated that the inclusion of BRL 4.5 billion “would not affect the essence of the announcement”, but did not respond when asked about the reasons for the government not to have adopted a prudential reserve to allocate it in the future to the extra readjustment of the minimum wage.

“There’s no magic involved, it’s just following our methodology,” he said.

In addition to reducing the deficit, the government announced the existence of greater slack in relation to the spending ceiling (a rule that limits expenditure growth to inflation). At the beginning of the year, the available space was R$ 3.4 billion. Now, it has gone to R$ 13.6 billion.

The slack grows when there is a reduction in expenses — the non-incorporation of the cost of the new minimum wage contributed precisely in this direction.

In theory, the greater space in the Budget would allow the government to increase expenses even more at the beginning of the year. The secretary, however, avoided giving indications on whether there will be filling the gap with more expenses.

“The LOA [Lei Orçamentária Anual] is available in its entirety for commitment. If there is going to be a decision to increase expenses, it is a decision by the government. There is not [decisão] on our part, what we are indicating is that there is this space”, said Bijos, avoiding making assessments on the prudence or otherwise of using the available slack.

The government also included in its primary result estimate a revenue of BRL 26 billion with the redemption of assets currently deposited in the PIS/Pasep Fund, which have been idle for decades without being claimed by their beneficiaries. The withdrawal of these resources by the government has already been authorized by Congress through the PEC (proposed amendment to the Constitution) of the Transition, approved at the end of 2022.

However, the Central Bank, the body responsible for the official calculation of the primary result, informed the government that it has the opposite understanding: withdrawal from the PIS/Pasep Fund does not constitute primary revenue. This means that, in official statistics, this will not improve the results of the accounts.

In practice, in the BC’s eyes, it is as if the projected deficit today were at least R$ 133 billion.

Bijos said that the government’s decision to consider revenue in reducing the gap has to do with the text of the constitutional amendment, which says that the resources “will be appropriated by the National Treasury as primary revenue”. “We are following the constitutional mandate,” he said.

The secretary also said that the government cannot “in any way” interfere with the BC’s understanding. “The official criterion is that of the BC. If there is a discrepancy, nothing prevents it from being discussed again,” he said.

The government also incorporated a gain of BRL 82.5 billion in income from taxes such as PIS/Cofins and Income Tax. Other reassessments provided, in all, a gain of R$ 110 billion in the net income of the federal government.

On the expenditure side, there was a net reduction of R$ 10.6 billion in the forecast for the year.

According to Planning, spending on extraordinary credits rose by R$ 4.1 billion, and expenses with financial support to states and municipalities provided for in Law Aldir Blanc 2, by R$ 3 billion. These impacts were more than offset by a reduction of R$7 billion in Bolsa Família and R$5.8 billion in social security benefits.

The government has been carrying out a reassessment of Bolsa Família registrations, which has resulted in dismissals and beneficiaries who do not meet the program’s criteria.

In addition, the Ministry of Development and Social Assistance, Family and Fight against Hunger started paying the additional benefit of R$ 150 to children up to 6 years old only in March. Failure to transfer funds in January and February ended up saving resources for the government.

In January, the Minister of Finance, Fernando Haddad (PT), announced a series of measures to reduce the “absurd” deficit of more than R$ 220 billion. The package provided for a potential adjustment of R$ 242.7 billion, but already at the time he recognized that some actions may not be confirmed.

Therefore, the minister has said that the objective is to close the year 2023 with a deficit of up to 1% of GDP (Gross Domestic Product), equivalent to around R$ 100 billion.

In the same announcement, the government indicated a forecast of saving BRL 50 billion in expenses, half with a smaller execution of the LOA and half with a review of contracts and programs. The report indicates that BRL 10.6 billion have already been cut, and there is a ceiling gap of BRL 13.6 billion that may not be executed, depending on a political decision.