New fiscal framework remains with Guedes maneuver – 04/18/2023 – Market

The government has chosen in its new fiscal framework the full-year 2023 inflation to readjust the base of the expenditure cap for 2024, adopting an option that gives extra relief for next year’s expenditures compared to the scenario in which the indicator up to the mid-year (accumulated in 12 months) was chosen.

Until 2021, the spending ceiling predicted that the limitation would grow based on inflation accumulated in the 12 months ending in June. That year, however, the then Minister Paulo Guedes (Economy) articulated a change through a constitutional amendment to consider the period from January to December (more advantageous at the time) and make room for more spending.

In its proposal for a new fiscal framework, the government could choose the correction basis – as the spending cap will be revoked. And it decided that the expenditure limit for the Executive and the other Powers in 2024 will be based on the 2023 figures plus inflation to be verified throughout the year (in addition to the real growth in expenditures, which will be between 0.6% and 2 .5%).

The choice for this mechanism favors expenditures in 2024 because the IPCA (National Consumer Price Index) has been lower than expected and should continue to slow down until mid-2023, before accelerating again in the second half of the year. The accumulated in 12 months ended in March, for example, was 4.65% – while the market forecast for the full year is 6.01%.

Until then, the government indicated that the calculation for the real growth in expenses would be made using numbers up to the middle of the year (based mainly on the accumulated net revenue in the 12 months ended in that period), but without the detail of how the calculation would look. of inflation. The text now brings the operation.

As the budget proposal for the following year needs to be sent to Congress by August (before, therefore, knowing for sure what the inflation for the year will be), it will be necessary to take into account the IPCA registered until June plus the forecast calculated until December. Subsequently, the indicator will be updated.

According to the government, the measure aims to use the model in force today, in the spending ceiling – and thus reduce any doubts among economic agents about changes.

In addition to the calculation of the IPCA to update the expenditure limit, the mechanism for real growth in expenditure is still foreseen in the proposal.

The real variation cannot exceed 70% of the real revenue growth (that is, if the revenue grows 2% in real terms, the expense grows up to 1.4% also in real terms).