Year 2024 is more difficult for expenses, says Treasury – 05/24/2023 – Market

The secretary of the National Treasury, Rogério Ceron, says in an interview with Sheet On the day that the Chamber of Deputies concluded the vote on the text of the new fiscal framework, the new version of the proposal was “tighter”, expanding the government’s fiscal challenge in the coming years, but with conditions to be met.

He argues, however, that the Executive needs some exceptions in 2024 to accommodate an already contracted growth in expenses for next year. The list includes the nursing floor and the resumption of linking the health and education floors to the collection —which could raise the minimum expenditure in these areas by up to R$ 35 billion, according to calculations by economists.

“The big challenge is 2024. All atypical things enter 2024. It is a difficult year. Bringing the floor of education, health, obviously, is meritorious, but it brings a big fiscal challenge. This combines with the floor of nursing. They are meritorious, but fiscally they bring challenges. All this puts pressure on. That is why 2024 is a more difficult year. Then things get better”, says Ceron.

“So what is the most appropriate thing to do? I elevate this band [de crescimento da despesa] to 3%, 3.5% forward, or do I adjust to accommodate the distortions that currently exist? There are atypical events that need to be incorporated, and from there we follow”, says the secretary.

The size of the adjustment mentioned by Ceron was the main sticking point in negotiations in recent days.

According to the rule proposed by the government, the increase in the spending limit for the following year must be equivalent to 70% of the variation in revenue in the 12 months accumulated up to June of the previous year, already discounting inflation, provided that the interval of 0.6% to 2.5%. In practice, these are the floor and ceiling for advancing expenses, regardless of the country’s economic situation.

Minister Fernando Haddad’s (Finance) team had expected to reach a 2.5% increase in the first year of the new framework’s effectiveness, which would be enough to accommodate the stronger advance of some mandatory expenditures. But changes made by the rapporteur, Deputy Cláudio Cajado (PP-BA), ended up restricting this potential.

In a concession to the government, the first version of Cajado’s opinion changed the rule to set the real adjustment of expenditure at a ceiling of 2.5% in the first year —which was seen by the market as a maneuver to authorize extra spending and generated criticism , including in Congress.

This Tuesday (22), the rapporteur proposed a compromise. The text predicts that the government will follow the general rule in preparing the 2024 Budget, but with the possibility of opening additional credits over the next year, in case the collection surprises positively.

In the calculations of congressional technicians, the device could give the government an additional break of R$ 15 billion to R$ 28 billion.

“Technically, I think it’s more appropriate to handle the exception first, and then you incorporate [na regra definitiva]how was it [no texto]. I think the dynamics are adequate, the rule is better for the medium and long term. He’s more consistent,” says Ceron.

According to him, the adjustment made at this time would be unique and linked to obtaining revenue, and the percentage of 2.5% stipulated as a ceiling for the increase in expenditure in the following periods would remain in line with Brazil’s economic growth rate in the long term. . On the other hand, if the alternative were to raise the ceiling of the expenditure correction band, this could create a sustainability problem for the rule.

The secretary points out, however, that granting extra space is not automatic, and the government will need to obtain a strong increase in revenues in 2024 to be able to enjoy the benefit. He calculates that the increase will have to be at least 5% above inflation – more than the 3.6% estimated by Congress.

The 3.6% account is mathematical, as 70% of this percentage results in the 2.5% limit for expanding expenses. But these are not the only factors that the government will need to observe when opening the additional credits authorized by the framework in 2024.

“This can only happen if you meet the primary. You can’t forget that. You can’t run that expense if you don’t meet the primary.”

The government set the goal of zeroing the primary deficit in 2024, that is, having expenses and revenues in equivalent amounts. According to Ceron, to achieve this balance, federal revenue needs to grow more than 4% above inflation.

“The regulation authorized that, if the revenue performs well, you can open the additional credit up to 2.5%. But the other article says that you need to comply with the primary result, because if you do not comply, you have to make a contingency”, he says.

“On the one hand, assuming that the calculation of revenue allows for a 1.5% growth in expenditure for next year, there is a difference of 1 percentage point [em relação ao teto], more or less R$ 20 billion. On the other hand, there is a contingency of up to 25% in the discretionary, which amounts to almost BRL 50 billion. So, I’ll only be able to use those R$20 billion if I’m completing the primary. If not, I will need to set aside up to BRL 50 billion”, he says.

In practice, without a greater effort on the revenue side, it is as if the government decided to spend with one hand and needed to rein in expenditure with the other.

The government today forecasts a growth of 2.3% in GDP (Gross Domestic Product) in 2024, which tends to boost revenue. Even so, the economic team would need to make a complementary effort of another 2% to 3% of advance in revenues to be able to take advantage of the bonus.

Even with the exceptions for 2024, Ceron assesses that the rapporteur has tightened the text of the framework by including automatic adjustment triggers in case of non-compliance with the primary target.

“I have not the slightest doubt that she [a regra] it was tighter, but it is undeniable that there was an effort by the rapporteur to dialogue and preserve the design and try to improve it, make it more consistent over time”, he says.

The secretary claims that there are important principles in the text constructed by Congress, such as the gradual implementation of triggers and the flexibility for the Executive to propose compensation other than those listed in the legislation.

The text approved by the Chamber prohibits, for example, the granting of new tax exemptions and the adoption of a measure that implies an increase in mandatory expenditure above inflation, in case the target is not met for one year. If there is an overflow for two years in a row, triggers are activated that prohibit new public tenders and readjustment for functionalism.

The President of the Republic, however, may propose alternative measures if he considers that these restrictions will be excessively harmful. Market agents saw this device as a kind of leniency with the goal overflow, but the secretary disagrees with this assessment.

“The text is very clear in the sense that you can choose. This is called democracy. If you do not take any other action, you will have to follow these measures [dos gatilhos]. But, assuming that one of those measures the government understands should not be taken, it can use another one. But he cannot not choose the compensation, which would be a weakness. You cannot choose not to make the adjustment, not to compensate for non-compliance”, he says.