Budget 2023 has challenges that go beyond Auxílio Brasil; understand

With no space to house the main electoral promises of the candidates for the Presidency of the Republic, the 2023 Budget proposal carries fiscal and political challenges that go beyond the Auxílio Brasil crack, readjustment for servers and correction of the Income Tax table.

The three themes predominate in the economic and electoral debate in the face of poverty and high inflation — which flattens the salaries of both civil servants and workers in the private sector.

Just to ensure the continuity of the increase from R$ 400 to R$ 600 in the Auxílio Brasil floor, another R$ 52.5 billion is needed. Some candidates promise an even higher amount. Former president Luiz Inácio Lula da Silva (PT) talks about paying an additional R$150 to each child up to six years old. Former minister Ciro Gomes (PDT) promises a minimum benefit of R$ 1,000.

The reserve of R$ 11.6 billion to increase salaries for Executive servants guarantees an adjustment of at least 4.85%, a percentage far from the claims of careers, which seek something between 20% and 30% to replace past losses.

The correction of the IR table, in turn, has no impact on expenditure, but can drain at least R$ 17 billion in revenues, depending on the magnitude of the change.

However, these are not the only challenges facing the president-elect and Congress, which will have less than three months to reformulate and vote on the budget piece.

The rapporteur-general, senator Marcelo Castro (MDB-PI), says that in September many parliamentarians will still be focused on their campaigns, but the debates can advance from October onwards. “It takes time. What you need is to do things in a reasonable and transparent way,” he says.

If, on the one hand, the deceleration of inflation until the end of the year should provide relief in the pockets of families, on the other hand, it should reduce the correction of the spending ceiling, a rule that limits the advance of expenses to inflation.

Although both President Jair Bolsonaro (PL) and Lula, his main opponent in the electoral race, are waving future changes to the ceiling, the cap is still in place and has been the starting point of the debate over the additional space needed to accommodate expenditures. in 2023.

In the current scenario, experts calculate that the deceleration of inflation until the end of the year could mean an additional cut of up to R$ 15 billion in the Executive Branch’s discretionary expenses, which finance the functioning of bodies and investments. They are already at a historically low level (R$ 83.1 billion), and a further reduction could lead to a blackout in the government.

The Budget was sent to Congress based on an IPCA (Broad Consumer Price Index) of 7.2%. But market expectations have already dropped –6.7%, according to the Focus bulletin released at the end of August.

With these parameters, discretionary spending would be reduced by R$8 billion, according to economist Marcos Mendes, an associate researcher at Insper and a columnist for Sheet.

Last week, Petrobras announced a new cut in gasoline, celebrated by the government, but which triggered a new round of adjustments to inflation projections – indicating an even greater correction of the spending ceiling.

ASA Investments revised its IPCA estimate for the year to 6%. Although lower inflation also mitigates the growth of spending on social security and assistance benefits, the change causes a net cut of R$ 15 billion in discretionary, calculates economist Jeferson Bittencourt, former secretary of the National Treasury.

The compression of current expenditures and investments to unsustainable levels tends to increase the pressure for a recomposition of these expenses in the Budget process. In practice, this should raise the bill for the “waiver”, a license to spend beyond the ceiling, seen as necessary for the next president to get through the year 2023 while a structural adjustment in fiscal rules is discussed.

In a first analysis of the Budget, Mendes estimates that the increase in the spending ceiling for next year will be at least R$87 billion (equivalent to 0.9% of GDP). The calculation was made considering the smaller cut in discretionary and an extra bill of R$ 51 billion with Auxílio Brasil.

The Insper researcher also included BRL 3 billion from the Aldir Blanc Law, in transfers to the cultural sector, and BRL 6 billion in expenditures from the FNDCT (National Fund for Scientific and Technological Development), in the expectation that the postponement and limitation of these expenses are reversed.

The economist also foresees an additional expenditure of R$ 10 billion with the acceleration of INSS benefit concessions, by reducing the queue, and another R$ 10 billion to recover mandatory expenses that the government was only able to meet because it resorted to parliamentary amendments – whose indication depends on the congressmen’s will and may be different from the one suggested.

The bill could be even higher. In the Macro Bulletin of FGV (Fundação Getulio Vargas), economists Manoel Pires, former secretary of Economic Policy at the Ministry of Finance, and Bráulio Borges, senior economist at LCA, estimate that the increase in expenses should exceed R$ 120 billion ( 1.2% of GDP).

The size of the allowance for extra spending in 2023 is, for the financial market, one of the great unknowns of the Budget. “The magnitude of Auxílio Brasil expenditures is very large, and despite this, the ‘waiver’ cannot be a train of joy to meet all the desires for more expenses, otherwise it will undermine the credibility of the fiscal trajectory at the beginning of the government. “, says Bittencourt.

The economist also warns of the political risk of an excessively high bill. The government sent the Budget proposal with a gap of R$ 89.2 billion in the so-called golden rule, which prevents the issuance of debt to cover current expenses (such as salaries and benefits).

Since Brazil began to have problems complying with the rule, Congress has gained a powerful bargaining chip, as the only possibility to overcome the problem is the approval of a special authorization by the Legislature. Without this endorsement, the government runs out of money to pay retirees and civil servants, a catastrophic situation from an economic and political point of view.

“Having an issue in which Congress has such great bargaining power is a fragility. And the side effect of a very large ‘waiver’ is that the new government can start the year in the hands of Congress”, says Bittencourt.

Experts question government optimism for 2023

The government’s assumptions about the economic situation used in the draft Budget for 2023 have also been questioned.

Economist Vilma Pinto, director of the IFI (Independent Fiscal Institution), linked to the Senate, highlights the government’s optimism regarding the strength of the economy in the coming year, observed in the detachment between the projections of the Ministry of Economy and the financial market for GDP of 2023.

The ministry works with a growth of 2.5% for next year, while the consensus of economists in the private sector foresees an expansion of 0.37%. The IFI, in turn, projects a rise of 0.6%.

“I have some difficulty understanding this 2.5% growth scenario without taking into account the effect of an extension of the benefit [Auxílio Brasil]which increases family income and consumption, and can generate more GDP in the short term”, he says.

The specialist points out that the “very optimistic” growth forecast is reflected in the forecast of revenues for the next year and that this, in a way, can compensate for the maintenance of tax benefits that would be valid until the end of this year – the main one being the tax exemption on fuel, at a cost of R$ 52.9 billion.

“A higher revenue projection may be offsetting the government’s conservatism when it takes into account the maintenance of tax benefits for the following year”, says Pinto.