The reality of numbers imposes itself – 11/22/2023 – Marcos Mendes

The fifth and final bimonthly report on primary income and expenditure was released this Wednesday (22). When analyzing the previous bimonthly assessments, I always emphasized that the expenditure figures were underestimated and the revenue figures overestimated, and that, as we reached the end of the year, the latest report would get closer to reality, abandoning the unrealistic assumptions.

When analyzing the previous report (4th bimonthly report), which predicted a primary deficit of R$141.5 billion (1.3% of GDP), I argued that the real number would be closer to 1.9% of GDP. This is exactly the number that the 5th bimonthly report is bringing.

A strategy of anticipating expenses and postponing revenues was to be expected, worsening the 2023 result to facilitate budget execution in 2024, given that the zero deficit target for 2024 is challenging and is under the spotlight of the political and economic debate, while that the 2023 target is extended and includes an increase in the deficit.

In addition to a reduction of almost R$6 billion in the estimated revenue from PIS, Cofins, CSLL and IR, it was decided to set aside a revenue from the transfer of judicial deposits from Caixa Econômica to the Treasury of R$12 for next year, 6 billion.

On the other hand, it was decided to pay financial support to states and municipalities this year which, by law, could be, in part, paid in 2024.

Furthermore, an additional transfer of R$4 billion to the FPE (State Participation Fund) and the FPM (Municipal Participation Fund) was included in the expenditure, which had long been decided by law, but which the government was slow to implement. in the accounts.

As already predicted, the Central Bank, in compliance with international accounting standards, did not agree to record the transfer of PIS/Pasep resources to the Treasury (R$26 billion) as primary revenue. Therefore, there is a statistical discrepancy between the result calculated by the Treasury, which includes this amount as primary revenue, and the result calculated by the BC, which disregards it.

As the official value of the primary deficit is that calculated by the BC, it was finally recognized that the deficit is R$26 billion greater than what had been announced.

One can always count on the pooling of resources that, despite being authorized, are not spent. This helps reduce the deficit at the end of the year. The Treasury estimates it to be R$30 billion. However, we have to take into account that there is a backlog of court orders due during the year and which are not being paid, and which also have a value of approximately R$30 billion. Thus, the “effective deficit” — considering the court orders that should be paid this year — would actually be 1.9% of GDP.

Note that in the previous paragraph I am not referring to the total stock of unpaid court orders since 2021, which should be approaching R$100 billion and which the government intends to pay in 2023. I am only referring to part of this stock which was registered in 2023.

If the amount of R$30 billion in court orders due and unpaid is not taken into account, and the pooling is taken into account, the deficit is R$178 billion (1.7% of GDP). Still a long way from the 0.5% of GDP promised by the government at the beginning of the year or 1% of GDP, which the tax authorities started to target from the middle of the year.

The result would be even worse if the government had not received a helping hand from the TCU (Federal Audit Court), which accepted that the increase in mandatory health expenditure, in the region of R$ 20 billion, resulting from the end of the spending ceiling, be postponed to 2024.

Finally, it should be noted that with an official deficit target of R$214 billion, and a deficit of R$178 billion, there is only R$36 billion space left to pay the stock of almost R$100 billion in late court orders . It will be necessary to create an exception to the primary target or the mistaken thesis of paying precatório as if it were a financial expense will be insisted upon, further damaging the credibility of the accounting criteria.

LINK PRESENT: Did you like this text? Subscribers can access five free accesses from any link per day. Just click the blue F below.