Subsidies rise to BRL 581.5 billion in Bolsonaro’s last year – 06/07/2023 – Market

Subsidies granted by the Union rose to R$ 581.5 billion in 2022, the last year of the Jair Bolsonaro (PL) government. The value is equivalent to 5.86% of the GDP (Gross Domestic Product) – a growth of 1.1 percentage points compared to the previous year and the highest level since 2016.

The account includes so-called tax expenditures, when the government gives up revenue to encourage activities or economic sectors, and financial and credit subsidies, aid given by the Union to make certain transactions cheaper, such as credit operations.

The data are part of the Federal Government Subsidy Budget report, released by the Ministry of Planning this Wednesday (7).

In an election year, tax expenditures reached a record level of 4.65% of GDP. The main explanation was the beginning of fuel tax relief, which consumed R$ 29.88 billion in resources last year.

The measure was lowered by Bolsonaro in an attempt to contain gasoline and diesel prices, which rose sharply in the wake of international oil prices and the appreciation of the dollar. The then president feared that the increase in bombs would damage his popularity and, consequently, his chances of re-election.

Financial and credit subsidies, in turn, doubled from 2021 to 2022, rising from 0.6% to 1.2% of GDP. The increase in the basic interest rate, the Selic, made subsidies granted by the government in subsidized credit lines (offered with lower rates, as in the Safra Plan, for example) more expensive.

Students’ debts with Fies (Higher Education Student Financing Fund) were also forgiven.

At a press conference, the Ministry’s Secretary for Monitoring and Evaluation of Public Policies and Economic Affairs, Sergio Firpo, said that it is not yet possible to predict whether there will be a drop in subsidies in 2023.

According to him, different factors may influence this year’s number. On the one hand, the gradual reduction in fuel tax exemptions and the expectation of a cut in the Selic rate may contribute to reducing the bill. On the other hand, the government of Luiz Inácio Lula da Silva (PT) has launched new policies with the potential to boost subsidies.

One of them is the Desenrola Brasil program itself, which will facilitate the renegotiation of negative debts.

The government will set aside R$ 8 billion to R$ 10 billion from the FGO (Operations Guarantee Fund) to guarantee new loans so that families can settle their debts with discounts. In case of default, the FGO honors the operations.

According to Firpo, depending on the design of Desenrola, the values ​​can indeed contribute to expanding the account.

The secretary avoided assessing whether the level of subsidies is high, given the significant growth compared to 2021. “Subsidies are part of the fiscal policy toolbox and should not be demonized,” said Firpo. “Whether it’s high or low, there’s no single answer. What we know is that it’s an instrument that should be used with a certain amount of moderation.”

Despite the recommendation of moderate use of the tool, the secretary said it was difficult to pinpoint an “optimal value” for the level of these incentives, whether as a fraction of GDP or in nominal terms.

The most appropriate thing, according to him, would be to promote the periodic evaluation of actions to find out if they are meeting their objectives, as well as stipulating deadlines for all policies. “It’s a valid instrument, but it needs to be evaluated,” he said.

The biggest challenge, however, is that many policies are designed without prior evaluation. Even in cases where the CMAP (Public Policy Monitoring and Evaluation Council) points out failures and needs for improvement, these conclusions remain stuck in the corners, without practical application. Most changes depend on the approval of the National Congress.

“We have to be able to evaluate and, if necessary, change routes”, stated the secretary. “What we do at the secretariat is to make these numbers transparent. It is important that there is a relationship between the Executive and Congress in relation to the evaluation of all public policies.”

In the Bolsonaro government, the Ministry of Economy tried to stipulate mechanisms that would force the Executive to reduce the level of tax expenditures, which represent the largest share of subsidies.

The first attempt was made in 2019, when the LDO (Budget Guidelines Law) project for the following year was sent, but it had no effect. In 2021, the government approved in the National Congress a constitutional amendment that required the presentation of a plan to cut tax expenditures from around 4% of GDP to 2% of GDP.

The Legislature, however, shielded a series of benefits, such as the Free Zone of Manaus, benefits to philanthropic entities and exemption from the basic food basket, among others. The sum of the exceptions reached around 2% of GDP —half of the existing incentives.

Under these restrictions, the government has frustrated expectations for a more aggressive cut. Presented in September last year, the dehydrated plan listed alleged cuts in benefits that, in fact, already had an end date.

At the time, a more benevolent interpretation of government legal bodies suggested that the cut target should focus only on the 2.06% of GDP in tax expenditures not exceptionalized by the Legislature. In practice, the legal obligation was a cut of only R$4.2 billion in eight years.