2023 fiscal target should allow deficit of R$ 66 billion

The Jair Bolsonaro (PL) government is expected to propose a fiscal target that authorizes a deficit of around R$66 billion in 2023, the first year of the next president’s term.

The federal government’s projections will be sent in the proposed LDO (Budget Guidelines Law) for next year. The document is sent every year until April 15th and needs to be analyzed by the National Congress.

The primary result is obtained from the difference between government revenue and expenditure.

Despite the recent increase in collections, the scenario outlined shows that the accounts will remain in the negative in 2024 and will only return to the blue in 2025, according to sources from the economic team.

If this picture is confirmed, Brazil will have accumulated 11 years of successive gaps in the accounts. The first deficit was recorded in 2014, still in the government of former president Dilma Rousseff (PT).

Also during the government transition, in 2018, Minister Paulo Guedes (Economy) even said that it was “feasible” to bring the deficit to zero in the first year of Bolsonaro’s administration. This result was not achieved in 2019, and the following year, the government had to open its coffers to combat the effects of the Covid-19 pandemic.

For this year, the Economy predicts a deficit of R$ 66.9 billion – less than the R$ 170.5 billion authorized by the target.

The deficit already includes recent tax cuts, which are expected to drain nearly R$50 billion in revenue, most of the Union’s cash. The load reduction has been used to try to ease the weight of inflation on consumers’ pockets, in a year already marked by the electoral climate, but it also has the effect of delaying the recovery of accounts.

The fiscal target stipulated in the LDO considers the accounts of the so-called central government, which includes the National Treasury, Social Security and Central Bank.

For 2024, the government’s projection indicates a negative result of approximately R$ 28 billion. In 2025, the country would have a surplus close to R$33 billion, the first since 2013.

The numbers were discussed at a meeting of the JEO (Budget Execution Board) this Wednesday (6th). The collegiate is made up of Guedes and Minister Ciro Nogueira (Casa Civil).

The results for the coming years are better than those indicated in the 2022 LDO, approved last year. Estimates at the time pointed to shortfalls of BRL 145 billion next year and BRL 102.2 billion in 2024.

Despite the positive turn in the primary result, the fiscal scenario should remain challenging. According to sources in the economic area, projections point to an increasingly limited level of discretionary expenditures, which include funding for the public machine and investments — normally cut targets when there is a need to hold back spending.

The low level of these expenses is generally associated by economists with a risk of blackout of the public machine or with difficulties in maintaining the spending ceiling rule, the government’s fiscal anchor that limits the advance of expenditures to inflation.

Last year, the government ran out of roof space to expand social programs and honor promises of amendments to government allies in Congress. As a solution, it ended up ratifying a PEC (proposed amendment to the Constitution) that postponed the payment of court sentences and even changed the way of calculating the spending limit. In practice, the changes expanded the ceiling by more than R$100 billion.

Even so, according to government projections, discretionary funds will have reached a level close to R$100 billion in 2024, falling to around R$90 billion in the following year – values ​​considered low to sustain the machine and public investments.

The aggravating factor is that these estimates do not consider any type of salary readjustment to public servants, nor an increase in the amount paid to beneficiaries of Auxílio Brasil, whose floor is currently R$ 400 — scenarios considered unlikely by the government’s own technicians.

Currently, several categories of civil servants are pressing for the granting of readjustments. Some have been on frozen salaries since 2017.

The government has in its menu of options an alternative that provides for a 5% readjustment for all careers, with an annualized cost of approximately R$ 10 billion. If the measure goes ahead, it would mean a reduction in discretionary expenses by the same proportion, making it difficult to manage the machine in the future.

In addition, even if Bolsonaro does not give in to the civil service and keeps salaries frozen, the pressure for readjustments should return to the surface in the first year of the next president’s term.

In the case of Auxílio Brasil, technicians say that it is unlikely that a program aimed at the low-income population will keep its benefits unchanged for three consecutive years.