Danilo Forte believes government is unlikely to reach zero deficit target in 2024, says he will not deliver bill that “leaves room for fiction”
08/14/2023
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Danilo Forte — Foto: Zeca Ribeiro/Câmara dos Deputados
The rapporteur of the 2024 Budget Guidelines Law (LDO), Deputy Danilo Forte, confirmed that he will include a line in his opinion to allow lawmakers to include congressional earmarks to the new Growth Acceleration Program (PAC) unveiled last week by the Lula administration. Mr. Forte told Valor that without the measure, the package of infrastructure works does not fit into the spending forecast for next year.
According to the lawmaker, the inclusion of the program in the budget without earmarks requires the government to raise the revenues needed to meet the zero-deficit target for 2024, which he considers “very difficult.” Therefore, he also advocates that the target be reviewed.
“The PAC does not fit in the budget the size it is today, unless the government succeeds in reducing the deficit to zero and there is economic growth,” he said.
Mr. Forte said he would not write “a budget bill that gives room for fiction.” He pointed out that he does not want to be the “bearer of bad news,” but he reflected that the more real his report is, “the more security the country will have.”
The ability of deputies and senators to direct funds to the new PAC was defended by the Lula administration. On Friday, at the launch of the program in Rio de Janeiro, Chief of Staff Rui Costa said that such earmarks should happen. The issue had already been raised when a preview of the plan was presented to congressional leaders days before the ceremony.
The new PAC provides for R$371 billion in public investment over four years. Although congressional earmarks are also part of the budget, the allocation of funds indicated by lawmakers has the potential to reduce the commitment of ministries’ budgets.
In defending the inclusion of the item, Mr. Forte makes a nod to the government. He also wants the LDO to include a timeline for implementing the changes. Today, these expenditures are mandatory, but the Executive branch has the power to control the flow of releases throughout the year.
Mr. Forte said that his biggest concern is how to include PAC in next year’s budget. The rapporteur met on Wednesday with Finance Minister Fernando Haddad and told him that he believes that “it is very difficult for the government to meet the zero-deficit target” in 2024.
The day before, the government had sent a message to Congress asking for changes to the LDO so that up to R$5 billion to be used in the new PAC would be subtracted from next year’s fiscal target.
According to Mr. Forte, Mr. Haddad acknowledged that the goal of reducing the fiscal deficit to zero is “ambitious” since it depends on the government achieving additional revenues of about R$130 billion. However, the minister argued that this goal could be achieved through the approval of three bills by the end of the year.
The first is the proposal to restore the casting vote in the Administrative Council of Tax Appeals (CARF), already passed by deputies and awaiting a report by Senator Otto Alencar. Mr. Forte recalled that only the liabilities of Petrobras amount to R$130 billion.
Still in conversation with Mr. Forte, Mr. Haddad added that the other two proposals – considered “chapters” of a future income tax overhaul – target the taxation of offshore funds and single-investor, closed-end funds. Both must be submitted to the legislature as urgent bills by August 31.
The taxation of offshore funds was proposed in April and is included in the provisional measure that raised the income tax exemption limit to R$2,112 as of as of May 1. However, the matter may lapse without a vote at the end of the month.
The taxation of single-investor funds depends on a new bill – under the current rule, these funds are only taxed when the fund is closed.
“I told the minister that he was optimistic, although our obligation is to be optimistic,” said Mr. Forte. “But there are a lot of variables involved.”
In parallel, Mr. Haddad also pointed out that decisions by higher courts will contribute to increasing revenues. Recently, the Superior Court of Justice (STJ) ruled that companies cannot deduct benefits granted by the states from income tax and social contributions on net profit (CSLL). The decision could generate an additional R$90 billion for Brazil’s Federal Revenue.
The rapporteur noted that Congress is unlikely to pass any matter to increase taxes, even for the super-rich. “There is room for discussion, but remember that there are many rich people in Congress,” he said. “And in a country where everything ends up in the courts, a lot of people will do so.”
In fact, about three weeks ago, Chamber of Deputies Speaker Arthur Lira defended to an audience of businesspeople in São Paulo the government’s decision to postpone the debate on the taxation of the “super-rich” until after the passage of the tax overhaul. For Mr. Lira, mixing the two issues at this time could disrupt the political environment.
However, Mr. Forte pointed out that Minister Haddad has proven to be skillful in dealing with Congress. “He has a good dialogue, the approval of the tax overhaul was a very well-done political construction,” he said. “But it’s a long way from passing a matter to increase taxes, even for the super-rich.”
In this context, Mr. Forte finds it difficult not to revise the fiscal target, because there are many adjustments to be made. “Haddad could have postponed this target until the end of the government,” he said.
The deputy recalled that the fiscal framework, which awaits the final vote in the plenary of the lower house, provides a margin of tolerance for compliance with the fiscal target of 0.25 percentage points of GDP. In this case, he argues that an estimate should be made with room for some deficit and limit for investments, especially in the clean energy sector.
Mr. Forte reiterated that he will present his report only after the Chamber completes the analysis of the fiscal framework, which awaits the opinion of Deputy Claudio Cajado. He said that the current trend of the lower house is to ratify the draft of Mr. Cajado passed by deputies, before the changes of the senators, which reduced the fiscal space, in his view.
Mr. Forte said that in the conversation with Mr. Haddad, the minister asked him for help in building the dialogue of Congress with the government on the LDO. Mr. Forte committed himself to this effort and to listening to all sides in the preparation of his report.
Among other things, Mr. Forte recalled that the gateway to attracting investment in clean energy is the Northeast region. His electoral base is the state of Ceará, which, along with Bahia and Paraíba, has attracted investments in wind farms.
“The current administration’s policies do not help this agenda, because they always go back to the past, to fossil energy,” he criticized. With this in mind, Arthur Lira announced that the Chamber of Deputies will present a “green agenda” at the end of September, and is expected to regulate green hydrogen.
Mr. Forte has already presented a work plan. He will open the debates by listening to Planning Minister Simone Tebet.
*Por Andrea Jubé — Brasília
Source: Valor International