Haddad wins for now, but will face a reckoning soon – 11/16/2023 – Market

Minister Fernando Haddad (Finance) may have won the battle for now to maintain the goal of bringing the government’s deficit to zero in 2024, but he has scheduled an inevitable reckoning on the issue.

On the one hand, preserving the target puts the government back in the search for fiscal balance after President Luiz Inácio Lula da Silva (PT) himself created turmoil by launching the chance for change. He stated that the target would not need to be zero, that achieving this objective would be very difficult and that a deficit of up to 0.5% of GDP (Gross Domestic Product) would be nothing.

With these statements, Lula was already threatening to abandon the objective of seeking more revenue without barely beginning to pursue it. The country was losing yet another opportunity to face with practical effects the historical discussion about who needs to pay more to the State while others still need it.

Now, postponing the debate on the target, Haddad gains time to seek revenues that he has been defending as a way of compensating for the expansion in spending observed at the turn of 2022 to 2023 and which had as its main justification the protection of the most vulnerable.

Among the fundraising proposals are those that target the top floor — such as the taxation of exclusive and offshore funds (which could yield R$20 billion). Also on the list are the project regarding interest on equity (which could generate another R$10 billion) and the change in ICMS benefit rules (with an expectation of R$35 billion in revenue).

On the other hand, these proposals have been languishing in Congress in successive discussions between government and leaders and, for the most part, without a vote.

Doubts and resistance are natural to the democratic process, but coordination with them needs to be intensified if the government does not want to suffer greater consequences in March.

It is during this month that the Executive will need to publish the first Bi-Monthly Primary Revenue and Expense Assessment Report of the year — as determined by the Fiscal Responsibility Law. The document shows, in numbers, whether it is necessary to contingency resources in order to meet the year’s target — that is, if there is a forecast of less collection than spent, it will be necessary to block funds.

The expectation of analysts and the government itself is that it will be necessary to contingency resources, which goes against the desire declared at different times by Lula to carry out works across the country on the largest scale possible.

Economists have been talking today about blocking at least R$40 billion, although the economic team can still maneuver to reduce the amount. To avoid this blockage, this would include the plan discussed behind the scenes to change the target in March.

In any case, the deadline is already knocking on the door. In theory, Congress has a date to end its activities in 2023 in just over a month, returning only on February 2nd. This takes more than 40 days off the calendar. And then there’s still a Carnival along the way.

A government that participates in the game of amendments, hosts parties in ministries for parliamentary support and hands over control of Caixa Econômica Federal to the center runs a real risk of not seeing its main demands approved in the first year of its mandate.

The scenario until March creates a risk not only for revenues, but also for the credibility of the fiscal framework and the government as a whole.