Withdrawal of BRL 26 billion from PIS/Pasep is not a ‘fiscal effort’ nor does it reduce a gap in the accounts, according to BC – 03/27/2023 – Market

The measure that provides for a rescue, by the National Treasury, of BRL 26 billion in resources abandoned in the accounts of workers in the PIS/Pasep Fund does not represent a “fiscal effort” and, therefore, does not serve to reduce the deficit in the accounts in 2023, according to the understanding of the Central Bank —the body responsible for official statistics on Brazilian public finances.

In practice, this means that the deficit this year, currently projected at R$ 107.6 billion by the government of Luiz Inácio Lula da Silva (PT), will be greater in the BC’s eyes. Considering the current scenario, the gap would exceed R$ 133 billion.

The inclusion of R$ 26 billion in the estimates for the year announced by the Ministry of Planning and Budget on Wednesday (22) has drawn the attention of economists, since it signals an apparent improvement that does not come from a government effort to balance accounts, nor does it represent a structural measure.

The decision, however, is in line with the objective of the economic team to indicate to the financial market that the deficit in 2023 will not exceed 1% of GDP (Gross Domestic Product), equivalent to about R$ 100 billion, as promised by the minister. Fernando Haddad (Farm).

The accounting criteria used by the government is considered questionable by experts, although it has legal support from a constitutional amendment enacted in 2022 that considers these resources a source of primary revenue. The assessment is that the maneuvers contribute to masking a much worse picture in terms of public account deficit.

On Wednesday, the Federal Budget Secretary, Paulo Bijos, said that the government is “following the constitutional order” and cannot “in any way” interfere with the Central Bank’s understanding. “The official criterion is that of the BC. If there is a discrepancy, nothing prevents it from being discussed again,” he said.

Pivot to the controversy, the PIS/Pasep Fund was created in 1975, from the unification of programs that sought to constitute a kind of private savings for the worker from the collection of contributions from employers. In 1988, the purpose of these resources was changed, but the accumulated balances until then were maintained in the accounts.

Over the years, a good part of the resources remained idle, despite attempts to make withdrawal possibilities more flexible. Today, there are R$26 billion available with no prospect of redemption, given that many beneficiaries have already died without leaving heirs or without the family being aware of the money.

Constitutional amendment 126, which increased the government spending limit in 2023, authorized the Union to appropriate these resources, giving an additional period of five years for eventual beneficiaries to claim the amounts.

The same device predicted that the withdrawn resources should be “appropriated by the National Treasury as primary revenue” to fund investments. The interpretation of the passage is that the redeemed amount should enter the income statement — therefore, reducing the deficit.

The statistical discrepancy comes from the fact that the bodies have different methodologies for calculating the primary result. The Treasury makes the calculation based on the difference between income and expenses, in accordance with the accounting rules provided for in the legislation.

The BC, on the other hand, analyzes the variation in stocks of liabilities and assets, that is, the public debt situation, in accordance with international standards. In this way, it is avoided that each country approves different methodologies for measuring numbers, compromising comparisons and analyses.

A wing of the government understands that the amendment device would also bind the BC, an interpretation that the body seems to reject.

A Sheet, the Central Bank informed that the redemption of the PIS/Pasep accounts, whose deposits have been frozen for years, represents a “transfer of economic ownership of a financial asset from the private sector to the public sector as a result of specific legislation”. This implies, according to the institution, a reclassification of assets in fiscal statistics.

“In this way, the operation does not result from an ordinary economic transaction between the public sector and the private sector, nor is it related to the result of current public operations”, says the BC in a note.

“According to these economic characteristics, in terms of the methodology of fiscal statistics, this transaction increases the Union’s financial assets, but does not impact the primary result, being considered, from the point of view of flows, as an equity adjustment”, he says.

Thus, in the eyes of the BC, the redemption of values ​​in the PIS/Pasep Fund only reduces the public debt indicators, since there is an incorporation of an asset to the Union’s equity.

The institution’s Fiscal Statistics Manual says that “adjustments [patrimoniais] are carried out to withdraw from the flows amounts that do not represent fiscal effort spent during the period under analysis”.

This explanation is relevant because the government is reducing the deficit based on the withdrawal of values ​​accumulated over decades.

For the sake of comparison, when several states decided to redeem private judicial deposits that were stuck in banks, with the objective of temporarily improving their cash position, this did not enter their primary result account.

In the opposite situation, when the Federal Government is obliged to recognize liabilities accumulated in the past, these amounts enter the Union’s debt account, but do not deepen the deficit. Hence the strangeness between economists and government technicians caused by the constitutional device.

This group also criticizes the fact that the Constitution, the country’s fundamental norm, is used to rule on issues as particular as how to account for revenue in the Budget.

Economist Marcos Mendes, research associate at Insper and columnist at Sheetclaims that the bimonthly report released on Wednesday seems to have been written to present a primary deficit forecast of 1% of GDP, fulfilling the Treasury’s promise of an improvement in the accounts.

“However, to arrive at this number, the document disregarded expenses already contracted, made an optimistic estimate of revenues, overestimated GDP in relation to the median calculated by the Focus Report and used questionable accounting criteria, even if by determination of a constitutional amendment”, criticize.

In addition to including the BRL 26 billion from the PIS/Pasep Fund as a source of revenue, the government did not account for the BRL 3.2 billion loss in revenue with the correction of the IRPF (Individual Income Tax) table, nor the additional expenditure of BRL 4.5 billion to cover the extra readjustment of the minimum wage, to BRL 1,320 as of May 1st.

There are still other pressures to come from the expense side, such as transfers to states and municipalities to finance the new nursing floor (estimated at R$ 16 billion) and to reimburse them for losses with the reduction of ICMS on fuel and energy ( around BRL 13 billion).

With these adjustments made, Mendes calculates that the government deficit would actually be BRL 170.3 billion —58.3% higher than projected by official bodies.

The Ministry of Finance has already said that it intends to seek compensation for the minimum wage measures and the IRPF table, cutting other expenses and raising revenues, but the eventual measures are still unknown.

The folder also calculates that the agreement with the states involving the ICMS will have a smaller impact in 2023, of R$ 4 billion, but the value has not yet been incorporated into the Budget estimates.