The government needs to guarantee an additional R$100 billion in the 2nd half of the year to close the gap in the accounts in 2024

BRASÍLIA and SÃO PAULO – The second semester will be decisive for the fiscal effort of the economic group, which must fulfill the bold objectives set in the new structure. Public accounts experts estimate that the government will need to raise about BRL 100 billion in the coming months to meet the shorter-term goal: closing the gap in 2024.

For this, the government will need broad support from MPs, who resume business this Tuesday 1st and are resisting backing increases Tax burden. The account becomes even more difficult to close when the new expenses that have already been contracted are brought to the table (see the infographic below).

“If the measures (from the collection) which are already in the bill for 2023 to guarantee BRL 90 billion in new revenue and maintain this level in 2024, even though the government will need to present another series of measures of almost BRL 100 billion to close the deficit next year year”. , claims Jefferson Bittencourteconomist at Asa Investments and its former secretary National treasure.

The calculation is confirmed by the economist Gabriel Leal de Barros, who is a partner of Ryo Asset and a former director of Independent Tax Foundation (IFI), a body linked to the Federal Senate. He estimates that between $90 billion and $100 billion in new collection action will be needed to enable the government to meet the target next year, but is skeptical of the target: “I think zeroing out is very difficult and even staying in the mix of 0.25 points is quite difficult.”

The new budget framework, which still depends on approval by Congress, requires the government to achieve a primary result (revenues minus expenses, not counting debt interest) as early as next year and, gradually, to reach a surplus (positive balance) of 1% of GDP in 2026, the last year of the term. Each year’s target has a margin of tolerance of plus or minus 0.25 percentage points. If the government fails to meet the key target, spending will only be able to rise by 50% of the variance in revenue, instead of 70% as originally planned.

So to stay within the tolerance range of the new rule in 2024, as the target is to close the gap, the government will have to run a deficit of, at most, 0.25% of GDP. A lower result would mean lower spending growth next year.

Public accounts experts say the government has even unveiled a wide range of measures in a bid to boost Union coffers. But they believe that, in addition to legislative uncertainties, the economic group’s plan could be thwarted by an overestimation of the collection value of each measure – which is at odds with analysts’ forecasts.

To begin with, there is already disbelief in relation to the 2024 Gross Domestic Product (GDP) growth expectation that appears in the proposal of Budget. The forecast is for growth of 2.3% next year, well above the projection in the Focus report, published by Banco Central, which is 1.3%. “It’s one point less (from PIB) it can already get R$25 billion from the government’s recurring revenue,” says Barros.

In 2023, the expectation of economists is that the country will have a deficit of around 1% of GDP – if confirmed, it will be a worse result than the projected target, a deficit of 0.5%.

“The values ​​that the government needs to find for an increase in revenue to bring the deficit to zero in 2024 are quite significant,” says Manoel Pires, coordinator of the Fiscal Policy Observatory of the Brazilian Institute of Economics. Getulio Vargas Foundation (Ibre/FGV). “This is a revenue increase of 1% of GDP (to clear the deficit). It’s too much.”

Among the measures already implemented by the government is the re-surcharge of fuel. the change in so-called “transfer pricing”, which eliminated loopholes used by large companies to collect less tax on export activities; and two amendments to the tax law.

One was the government’s victory Superior Court of Justice (STJ), which ruled that state benefits cannot be deducted from federal taxes. Soon, companies will have to pay more taxes. And the other was a regulation made at his discretion Federal Supreme Court (STF). The law specified that ICMS, which is the responsibility of the States, could not be used to increase corporate credits related to federal taxes – thus reducing credit potential and increasing revenue expectation.

“There is doubt about the real potential of these collection measures, from which the government manages to emerge victorious. Obviously, (the recipe) may be a little smaller than expected. If this is true, next year’s fiscal framework to meet the target is even more difficult,” says Pires.

Aware of the challenge of billionaires to close accounts, technicians from Ministries of Finance Is from Planning are working on a number of new collection projects, which will be sent to Congress with next year’s Budget, which must be submitted by August 31.

In this list, which is still under study, are changes in the taxation of exclusive funds, called ultra-rich funds, which currently only pay Income Tax (IR) on redemption. and Interest on equity, a tool that allows companies to pay their investors as an expense and thus deduct from Income Tax. The government expects to raise R$10 billion with each measure next year.

The financial group’s bill also includes projects that are already in Congress. To offset the increase in the income tax exemption in the range of the two minimum wages, for example, the government issued a Temporary Measure on the taxation of offshore funds. Today, these investments are often made in tax havens, where they are tax-free.

The temporary measure (MP), however, expires on August 27 and the Ministry of Finance, which hopes to raise BRL 4 billion next year with the action, is considering sending a new text to guarantee these resources.

There is also an expectation of additional collection with the bill returning the override vote (a tie in favor of the Treasury Department) to Board of Tax Appeals (Carf), a court competent to adjudicate tax disputes between the Federal Revenue Service and taxpayers. The project was approved by Parliament in early July, and still needs to be considered by the Senate. The government plans to raise BRL 15 billion in 2024 with the measure.

The list is still made up of its regulation sports betting and from plan to combat tax evasion in international electronic commerce, which goes into effect this Tuesday, focusing on Asian retailers such as Shein, Shopee and Aliexpress. The two measures could bring, respectively, BRL 2 billion and BRL 8 billion to public coffers in 2024, according to estimates by the economic group.

“These measures may not be enough to achieve the goal. We’ll probably see other things ahead that we don’t yet know about,” warns Pires.

It is no coincidence that the need for government revenue is, today, in the billions. The Union has incurred various costs since the transition – and is now trying to find ways to offset them.

“The administration ‘reinvented’ a set of rules that automatically push federal spending up even faster than the growth cap set by the new fiscal framework,” says Bittencourt.

The former finance minister estimates, for example, an additional expenditure of BRL 80.7 billion in social security and assistance costs in 2024. This is mainly due to new minimum wage correction policybut also to the impact of inflation and the exponential increase in the number of Social Security beneficiaries.

In terms of personnel costs, the additional expenditure is estimated at R$18 billion, due to 9% readjustment granted to the federal civil service and also from the exponential growth of this expenditure, since civil servants automatically advance in their careers.

Additionally, the end of the spending cap, which will be replaced by the new framework, will unlock it constitutional floors of health and education (minimum implementation provided for in the Constitution). As a result, these costs will no longer be adjusted for inflation and will follow the evolution of government revenues. In 2024, Bittencourt predicts, this will mean an additional R$30 billion in spending.

And this in an increasingly fair fiscal space: just in the last 45 days, the spending limit for next year has been reduced by around BRL 6 billion. Bittencourt explains that this is due to the drop in inflation expectations for 2023, which fell from around 5.2% to 4.9%. In the text of the framework, it is projected that spending will always rise above inflation, in a band ranging from 0.6% to 2.5%.

Part of the market believes that the financial group will not be able to meet the targets set out in the new framework – which raises concerns. Analysts warn that it would be important for the government to regain its ability to generate a surplus, with the aim of stabilizing the debt trajectory, which is already above the developing country average.

If the government does not, in fact, meet the target, economists say it will be important to at least ensure a trajectory of fiscal improvement. “My assessment is that if we fail to meet the target but show progress on this fiscal issue and on other issues (of the economy), this fact can be reduced in view of the context in which we live,” says Pires, from Ibre/FGV.

“Today, we live in a moment where things are converging in our favor for various reasons. There is a scenario in which interest rates are cut, the external accounts perform terribly, and GDP is revised upwards. When you look at the other variables that matter to the Brazilian economy, the outlook is for improvement,” he adds.