Government needs to block R$ 1.7 billion to avoid breaking the ceiling

The Jair Bolsonaro (PL) government will need to block BRL 1.7 billion in expenses from the 2022 Budget so as not to breach the spending ceiling, according to people involved in the negotiations heard by the Ministry of Health. sheet.

There is a need to cover the increase in expenses with subsidies from the Safra Plan and with other expenses that ended up rising more than expected, such as personnel. The bimonthly review of the Budget will be announced by the government this Tuesday (22).

In order to recompose expenses, it will be necessary to cut resources from other areas, given the limitation of the ceiling, which prevents the growth of expenses at a pace above inflation.

Initially, the need for blocking was greater, at R$ 2.9 billion. In the early evening of Monday (21), government officials resumed negotiations to reduce the size of the hole and avoid imposing severe restrictions on bodies in an election year.

As a result, a recomposition of R$ 1.2 billion in mandatory expenses was postponed to a second moment. These are resources referring to the hiring of the Ministry of Education’s teacher bank and subsidies for contracting operations under the 2022/2023 Safra Plan — which will only begin in the second half of the year.

The technicians’ assessment is that these expenses may be addressed in the next Budget assessment report, to be released in May.

Representatives of the Economy even suggested the use of the R$ 1.7 billion reserve earmarked for granting readjustments. Bolsonaro intends to increase salaries for police officers, which make up his electoral base, but he runs into other categories, who demand the same treatment and press for increases.

The use of the reserve would allow the full recomposition of needs while at the same time reducing the cut made in the operating expenses of government agencies. But Bolsonaro vetoed that possibility and ordered the maintenance of the budget for readjustments, according to government sources heard by the Ministry of Health. sheet.

The need for spending cuts comes as ministers from the political wing of the Bolsonaro government are pushing for additional subsidies to lower fuel prices, whose increases have boosted inflation in an election year.

However, unlike the usual government expenses, any subsidy could be financed by extraordinary credit, outside the ceiling limit.

Despite pressure on the spending side, government revenues are still on the rise and should contribute to mitigating the deficit forecast for the year.

According to government sources consulted by the report, the projection of the gap for 2022 should be R$ 68.1 billion – below the forecast of a deficit of R$ 79.35 billion established in the approval of the Budget, at the end of 2021.

The new estimate already includes recent tax exemptions made by the government.

In February, Bolsonaro signed a decree that promoted a 25% linear cut in IPI (Imposto sobre Produtos Industrializados) rates, a measure that has an impact of around R$10 billion in federal revenue. Another R$ 10 billion will be subtracted from state coffers.

In March, Congress approved and the president sanctioned changes in the collection of ICMS (Tax on the Circulation of Goods and Services) on fuels. The text also zeroed PIS/Cofins rates on diesel, biodiesel, cooking gas and aviation kerosene. The impact is close to R$ 20 billion for the Union.

The updated projection of the gap, however, does not include an accounting expense of approximately R$24 billion that will need to be considered in the primary result due to the agreement between União and São Paulo City Hall to end the legal dispute over Campo de Marte.

As the agreement means a kind of indemnification payment from the federal government to the City Hall, this amount will need to be accounted for in the results of public accounts, although it does not generate any effective disbursement – in exchange for the end of the dispute, the government will extinguish the debt of the municipality of São Paulo with the Union.

This impact should be included in the next Budget assessments, as the agreement, although already signed, still needs to be ratified by the Courts.

The focus of this Tuesday’s disclosure (22) should be the need to block expenses.

as showed the sheetthe government has needed to reallocate resources to cover additional spending on subsidies to agribusiness producers under the Safra Plan and other subsidies funded by the National Treasury.

The extra bill stems from the significant increase in interest rates, which increased the expense of the so-called equalization – the government pays the difference between the rate charged to producers, lower, and the effective cost of the financial institutions that lend the money.

According to government technicians, a reallocation of more than R$ 1.7 billion was estimated just to cover extra expenses with subsidies for the agricultural area, but part of this was left for a second moment.

As a result, the total amount of the blockade is only enough to cover part of the increase in mandatory expenditures, that is, which the government cannot fail to carry out.

There are still other emergency situations that have not been addressed. The portfolio of Minister Paulo Guedes (Economy) had its resources cut by 50% by parliamentarians during the discussion of the Budget in Congress.

Of the BRL 2.5 billion shearing in the Economy, less than BRL 500 million could be reallocated through ordinances so far.

On the political wing, however, there is strong resistance to more aggressive blockades, given the limited space for cuts. At the beginning of the year, as revealed by the sheetthe Economy even asked for a blockade of BRL 9 billion, but the presidential veto was only BRL 3.2 billion.

Bolsonaro’s political choice at the time was to preserve as much as possible the R$16.5 billion in rapporteur amendments, an instrument used by congressmen to direct budget funds to their electoral strongholds.

Other bodies also face restrictions. With Bolsonaro’s veto, the INSS (National Social Security Institute) lost R$988 million in maintenance expenses. The blockade was made to allow for the recomposition of underestimated personnel expenses.

In January, sources linked to the agency warned of the risk of stoppage in service to policyholders.

There is a risk that the veto will be overturned by parliamentarians voting in the National Congress, but government sources say that negotiations are underway to prevent this from happening. The overthrow of the veto would end up jeopardizing the appropriations for spending on civil servants’ salaries.