Target of zero deficit in 2024 increases pressure for revenues – 06/29/2023 – Market

The promise of Minister Fernando Haddad (Finance) to eliminate the deficit in public accounts as early as 2024 has made the task of finalizing the Budget proposal for next year even more challenging —which needs to be sent by August 31 to the National Congress.

According to reports gathered by the Sheetthere is pressure behind the scenes for the Federal Revenue to put on paper the collection estimates necessary for the government to be able to reach the established goal.

By sending the PLDO (Budget Guidelines Bill), the economic team saw an increase of R$ 155.7 billion in managed revenues, due to “legislative measures that are under discussion in the Executive Branch”.

Since then, part of the measures has been taken, but others are still being debated internally in the government.

In addition, technicians have adopted more conservative projections than some numbers that have been touted by the economic team, requiring an even greater fiscal effort to close the Budget. According to a member of the government, the internal schedule is delayed just waiting for these estimates.

In recent days, the top echelons of the Ministry of Finance have been asking technicians to prioritize the preparation of revenue projections. According to reports by different members of the government, made under reservation, the pressure is great to reach zero deficit.

There is an internal assessment that achieving this goal is crucial to maintaining the credibility of the new fiscal rule, which, if approved by Congress, will enter into force in 2024. bad at a time when the government itself is working to reduce fiscal uncertainties and pave the way for an interest rate cut by the Central Bank.

Although Haddad has advanced on some fronts, such as the victory at the STJ (Superior Court of Justice) regarding the collection of federal taxes on ICMS tax benefits, the Budget calculations need to be supported by technical notes and documents produced by the portfolio’s employees.

Technicians, however, have had difficulties in presenting certain estimates due to the lack of sufficient parameters for the projections. This is the case, for example, of the taxation of earnings obtained abroad, proposed by MP (provisional measure), but whose real collection potential is still unknown by the Revenue.

The victory in the STJ itself is the subject of controversy. Behind the scenes, there are those who speak of BRL 90 billion or BRL 60 billion, while the number listed as a possible risk in the 2024 PLDO is BRL 47 billion.

The measures may even yield billions in new revenue for the government, but putting optimistic numbers on paper and presenting them in an official document are delicate decisions, since these technical notes will later be analyzed with a magnifying glass by the TCU (Tribunal de Contas da União ). In case of irregularity, whoever signed the document responds with their own CPF.

There is a rush to prepare the necessary documents to send other measures that have not yet left the Treasury, such as the taxation of sports betting.

The case of this initiative also illustrates the difficulty of the government. This Tuesday (27), the special adviser to the Ministry of Finance, José Francisco Manssur, said that the government estimates that it will raise between R$3 billion and R$6 billion next year with the regulation of sports betting in Brazil.

The value represents half of the estimated annual revenue mentioned by Haddad, who even spoke of a potential between R$ 12 billion and R$ 15 billion.

Assistants to the Minister of Finance do not talk about possible difficulties and claim that there is even a menu of “reserve measures” to close the Budget accounts, in case there is any unforeseen event with the actions already planned.

In informal conversations, government officials say the reserve includes “plan B”, “plan C”, and so on. One of the targets on the economic team’s radar is tax spending, as the benefits granted to companies or sectors are called.

Sought, the Ministries of Finance and Planning did not respond until the publication of this text.

An interlocutor says that there is no atypical effort in relation to the “normal process” of preparing the Budget, although the government needs to send to Congress by the end of August the remaining initiatives to balance the 2024 accounts. it can only be accounted for in the Budget proposal if the respective measure is already being processed, in the form of a bill or MP.

In the case of a bill, accounting is more fragile, since the delay in approving this initiative would force the government to deduct these revenues from its projections as early as March, when the first bimonthly budget evaluation report is published.

Despite the strategic importance of obtaining the necessary revenue, a technician explains that the task is not simple, since the government can only include net collection numbers in the fiscal target account, after discounting constitutional transfers to states and municipalities.

Another difficulty factor is that, under the rule of the new fiscal framework, a significant increase in revenue helps boost the spending limit, generating a kind of “feedback”. A wing of the government has warned that the design of the framework has generated a high dependency on revenues — something that has already been the subject of reservations by economists.

Technicians participating in the discussions raise a third point: although the framework has created a margin of tolerance (band) for meeting the fiscal target, the submission of the Budget needs to follow the center of the target set for the year.

The device is in the third paragraph of article 4 of the bill. The text says that “the elaboration and approval of the annual budget bill, as well as the execution of the respective law, must be compatible with achieving the primary result target established in the budget guidelines law”. The tolerance intervals are only applied “at the time of execution”, i.e. throughout the 2024 financial year.

This means that the economic team needs to deliver the Budget proposal with enough revenue to eliminate the deficit, even if the margin of tolerance for next year allows for a negative result of up to R$ 28.8 billion.