Lula government worsens projection of deficit in accounts in 2023 and will block BRL 1.7 billion – 05/22/2023 – Market

A sharp increase in expenses led the government of Luiz Inácio Lula da Silva (PT) to worsen its projection for the result of public accounts this year and announce a blockade of R$ 1.7 billion in discretionary expenses, which include funding and investments.

The deficit is estimated at R$ 136.2 billion, equivalent to -1.3% of GDP (Gross Domestic Product), according to the Income and Expenditure Assessment Report for the 2nd bimester, released this Monday (22) by the Ministry of Planning.

The value represents a deterioration of R$ 28.6 billion in relation to the last forecast, released in March, which indicated a negative number of R$ 107.6 billion. The figure is also far from the deficit of 0.5% of GDP promised by Minister Fernando Haddad (Finance) when presenting the proposal for a new fiscal framework.

The deterioration in the government’s fiscal framework is mainly due to increased expenditures, although there has also been a reduction in the revenue forecast. One of the main factors behind the increase in spending is the new minimum wage (R$ 1,320), readjusted on May 1st.

Spending increased by R$ 24.2 billion compared to the March report, which blew all the slack there was in relation to the spending ceiling — a rule that limits the growth of expenses to inflation and is still in effect. With that, the government will need to block BRL 1.7 billion in discretionary expenses (which include funding and investments).

Two months ago, the economic team maneuvered and decided not to include in the Budget the costs to cover the minimum wage readjustment, which at the time had not yet been implemented, but had already been announced by Lula. The national floor in effect at the time was R$1,302.

As shown to Sheet, the decision was alerted by the Ministry of Social Security, for not reliably portraying the dynamics of expenses in the year. In recent days, the folder has sought the economic team to point out the need for more resources.

Now, the government has incorporated the higher amount of the minimum wage, which caused an increase of R$ 6 billion in social security benefits and R$ 3.9 billion in expenses with salary bonuses and unemployment insurance.

Planning also reported an increase of R$ 7.3 billion in the estimate of expenses due to transfers to states and municipalities to help pay for the minimum wage for nursing. A credit in that amount was approved by the National Congress at the end of April.

There was also an increase of R$ 3.9 billion to fund the financial support to states and municipalities provided for in the Paulo Gustavo Law, approved as a way to help the cultural sector recover from the crisis caused by the Covid-19 pandemic, which suspended the most face-to-face shows.

In the macroeconomic projections, the Executive also pointed to an estimate of greater GDP growth, of 1.91%, as anticipated last week by Haddad. Before, the number was at 1.61%.

Greater progress in economic activity usually has a positive impact on government revenue forecasts. However, the final balance of the gross revenue estimate had a deterioration of R$ 8.5 billion in relation to the March report. Net revenue fell by R$ 4.4 billion.

According to Planning, there was an increase of R$ 5 billion in forecast earnings from dividends and participations and R$ 3.1 billion from CSLL (Social Contribution on Net Income). On the other hand, projections for royalties (BRL 5.6 billion), social security contributions (BRL 4.1 billion), Cofins (BRL 4.2 billion) and import tax (BRL 3.8 billion) fell. .