The Independent Fiscal Institution (IFI), of the Federal Senate, estimates that the government will need an additional effort of R$42.3 billion in the last two months of the year to bring the primary deficit to zero in 2024.
If the government seeks to limit the tolerance margin provided for in the new fiscal framework, the amount required would fall to R$13.6 billion. The assessment is included in the November Fiscal Monitoring Report (RAF), which was released last Thursday (21).
Measures that can help the government achieve fiscal goals include the reduced execution of parliamentary amendments to the Budget, the “pooling” of budgetary resources, a greater transfer of dividends and results from state-owned companies, in addition to spending blocks and contingencies. The analysis is by Marcus Pestana and Alexandre Andrade, executive director and director of IFI, respectively.
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“This amount of R$ 13.6 billion can be achieved with greater effectiveness of some measures provided for in the Anuel Budget Law, with some positive surprise in revenue due to the dynamics of economic activity, with other measures to compensate for payroll tax relief payment, or even with the lack of execution of the rest of the parliamentary amendments authorized for 2024”, point out the two in the report.
Amendments
On Thursday, Congress concluded voting on the complementary bill (PLP) that regulates the rules of transparency, execution and impediments for parliamentary amendments to the Budget (PLP 175/2024). The matter went to presidential sanction.
PLP 175/2024 is an attempt to resolve the impasse over the payment of individual mandatory amendments, which include those classified as special transfers (known as “Pix amendments”).
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The release of parliamentary amendments is suspended by order of Minister Flávio Dino, of the Federal Supreme Court (STF). It conditions the payment of amendments to the definition of rules on traceability, transparency, social control and impediment.
In 2024, according to the IFI report, R$28.4 billion in amendments were paid until October, out of an amount of R$45.3 billion referring to the payment limit for amendments for the year – adding individual, bench and of commission. The amount disbursed includes the remains payable from previous years paid off in 2024.
“Thus, there would be a shortage of R$ 16.9 billion that could be implemented in amendments, but which, so far, cannot be implemented due to the STF decision. Considering that there are two months left until the end of the year, meeting this year’s primary result target may become easier”, says the report.
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“Empoçamento”
The so-called “resource pool” is the difference between the authorized payment limits and the amounts actually paid in a given period. Until the end of the fifth two months, the payment limit for discretionary (non-mandatory) expenses was R$162.7 billion. The data indicates that, to date, R$140.8 billion in these expenses has been paid. Thus, the IFI estimates the sum of R$21.9 billion “pooled”.
“If the pooling continues, in the last two months of the year, at the level observed until the 5th two months, the possibility of meeting the primary result target increases, although this could harm the achievement of the fiscal target in the year 2025”, warns the report.
In addition to these factors on the expenditure side, it is possible that measures on the revenue side are used to achieve the fiscal target for the year. For example, an extraordinary payment of dividends is expected from the National Bank for Economic and Social Development (BNDES), which has already transferred R$10.1 billion to the Treasury this year.
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Tax adjustment
The scenario for the coming years could be more complicated, according to the IFI. The institution highlights four decisions adopted during the transition and in the first year of the current government that made the task of balancing public accounts “even more complex”:
- Fiscal expansion accounted for by the incorporation of the increase in Bolsa Família to the level paid throughout the pandemic;
- Resumption of linking education and health expenses to revenues;
- Correction of the minimum wage above inflation and its maintenance as an index;
- Creation of budgetary funds provided for in the tax reform (Constitutional Amendment 132).
The IFI estimates that these measures will represent an increase in spending of between R$2.3 trillion and R$3 trillion over the next ten years. Given this scenario, the government would have two possible paths: a short-term adjustment, with limited scope, to guarantee compliance with the fiscal rule in 2025 and 2026; or a deeper structural rearrangement, aiming to guarantee soundness and fiscal sustainability in the long term.
“If the spending review measures to be announced are only cyclical, serving only to meet the expenditure limit of the fiscal framework until the end of the current government, it is possible that expectations will not be reversed and that the conduct of fiscal policy will continue to guide the economic debate, maintaining pressure, mainly, on exchange and interest rates, with a growing impact on public debt”, conclude the IFI economists.
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