Public accounts: how analysts viewed the prospect of changing the fiscal target in 2025

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While pursuing a zero deficit this year, Haddad indicates that he should review his projection for 2025. Economists are divided between the advantage of reestablishing a viable number and the disadvantage of already failing to comply with the fiscal framework. The Minister of Finance, Fernando Haddad Diogo Zacarias/MF Experts interviewed by g1 were already expecting a review of the government’s fiscal targets, even more aggressive than those anticipated this Monday (8) by the Minister of Finance, Fernando Haddad. That doesn’t mean they think the change is positive. Haddad said that the government is trying to set a “feasible target” for public accounts in 2025. Until now, the ministry had indicated a surplus projection of 0.5% of GDP (Gross Domestic Product) for next year. “We are running out of time to do the necessary calculations to set a feasible target in light of what has happened over the past year,” he declared in an interview with journalists outside the ministry. The surplus estimate of 0.5% of GDP was presented about a year ago and appears in the Budget Guidelines Law (LDO) 2024. But the target that will actually come into force in 2025 will have to be included in the 2025 LDO, which the government sends it to Congress by the 15th. Haddad says the government is seeking a “feasible” fiscal target for 2025. According to Valdo Cruz’s blog, the economic team is studying reducing the 2025 fiscal target from 0.5% to 0, 25% of GDP given the difficulty of generating new revenue without increasing the tax burden in the country. The government’s assessment is that sources of revenue are running out, and some of them are not recurring. Last year, Haddad managed to approve a good part of his agenda of fundraising measures. They are: taxation of investments abroad (offshore) and exclusive funds; the resumption of the rule that favors the government in judgments at the Administrative Council for Tax Appeals (Carf); the MP for ICMS subsidies and; the taxation of the electronic betting market on sports games. In fact, in the first two months of this year, federal revenue totaled R$467.2 billion, which represents real growth (above inflation) of 8.8% compared to the same period last year. The data is from the Federal Revenue. In 2024, however, the department suffered defeats. The decision by the president of the Senate, Rodrigo Pacheco (PSD-MG), not to extend the section of a provisional measure that reburdened the payroll of around 3 thousand municipalities and could reinforce the federal cash flow by around R$10 billion. Furthermore, the government had already suffered the loss in relation to Perse – a program for the events sector – and the exemption of sectors of the economy. It’s very bad to change a fiscal target so soon, says Daniel Sousa about reducing the target for 2025 As g1 showed this Monday (9), the economic team would need to increase revenue, through additional measures, by R$ 296 billion in 2025 and 2026, to meet existing fiscal targets. The difficulties keep analysts skeptical about the fiscal target. Economist Felipe Salto, chief economist at Warren Rena, maintains the projection for 2024 of a public accounts deficit of -0.79% of GDP. “It could improve if revenue dynamics continue to surprise. March data indicates that total collection performance continues to be quite good, as in the first two months,” he states. Salto also states that it is necessary to know the decision of the Federal Court of Auditors (TCU) on the limit for spending contingencies in 2024. The law establishes a limit of around R$26 billion for contingencies in 2024. However, the framework tax approved in August 2023 establishes that the block can be up to 25% of discretionary expenses. This value would exceed R$50 billion. For Salto, sending the Budget Guidelines Bill (PLDO) is the time to recalibrate the goals. And, if it is impossible to reach the projected values ​​in 2023, it is time to change. After the return of tax relief for city halls, Haddad repeats his appeal for a pact between Powers to meet targets “The government should change it to zero [em 2025]. It will already be quite an effort, and next year we won’t have this mountain of extra income.” “The essential thing is to show that there is a trajectory of [resultado] aligned with the achievement of debt sustainability over some horizon. In this case, the horizon that the New Tax Framework Law determines is 10 years”, says Salto. Matheus Pizzani, economist at CM Capital, also agrees that the modification of targets could end up being positive for fiscal policy, assuming that the new objectives proposed for this period are realistic. “A new goal still demands perseverance and continuous action on the part of the economic team in order to seek a more balanced budget. And the most important thing is the stabilization of the Brazilian public debt trajectory,” he says. Gustavo Cruz, strategist at RB Investimentos, is on the side of those who interpret that the change in the fiscal target is a negative sign, as it shows that the fiscal framework was already breached in its early years. “It reflects a lack of commitment to the goals set by the government for voting. This demonstrates that the fiscal issue is not being addressed in an ideal way”, says the analyst. Valdo: government will accelerate the release of amendments for the allied base in this first semester Cruz points out that, although there is a struggle on the part of the economic team to maintain the target, there is no significant effort to discuss spending cuts and that the government avoids topics such as an administrative reform that would attack high civil service salaries. “On the international scene, we observe debt problems even in European countries and the United States. But Brazil is criticized compared to its emerging peers such as Mexico. This puts the country in an unfavorable position when it comes to attracting investment.” Rogério Mori, economist at Davos Investimentos, reaffirms that the market was already anticipating a review of the targets because the government insisted on pursuing the targets through revenue, without discussing spending reductions. For him, although the review represents a step towards reality, it still does not fully meet expectations for the coming years. “This could have negative effects in the long term, such as possible impacts on interest rates. We are facing a still worrying situation.” “Although it represents a more realistic view of the fiscal situation, we cannot consider this approach as positive”, says the analyst.

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