End of relief is expected to return almost R$55bn to federal government next year
12/29/2022
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Raul Velloso — Foto: Leonardo Rodrigues/Valor
The end of federal taxes relief on fuel as of January leaves the central government deficit (National Treasury, Social Security, and the Central Bank) in 2023 closer to 1% than to 1.5% of GDP, economists point out but does not change the worrisome trajectory of the debt and the need to review spending.
The future Finance minister of Luiz Inácio Lula da Silva, Fernando Haddad, asked the current minister, Paulo Guedes, to let the social taxes PIS/Cofins and federal tax Cide relief on gasoline, ethanol, and diesel, as ordered by president Jair Bolsonaro in the election race, expire on December 31.
“Bolsonaro made a political decision that goes against economic logic,” says Raul Velloso, a public finance specialist. The fiscal effort to keep fuel prices artificially low, he says, is incompatible with the need to balance the Budget, even without a spending cap, of which Mr. Velloso is critical.
The end of the relief is expected to return almost R$55 billion to the federal government next year, economists estimate. “There is no way at this point to give up a high value like this unless the elected government gives up its social welfare policy,” says Mr. Velloso.
Many companies already include these additional revenues in their projections. Terra Investimentos expects a R$90 billion deficit for the central government in 2023. The calculation considers, on the expenditure side, an increase in expenses with the Proposal of Amendment to the Constitution (PEC) of Transition and other fiscal expansion initiatives. On the revenue side, it considers R$53 billion from the relief of federal taxes on fuel, in addition to about R$30 billion from other tax reductions that, in Terra’s view, may happen, for example, in taxes on industrialized products and imports.
Still, the expected deficit is large, says Homero Guizzo, economist at Terra, estimating that the gross debt may rise to 82.3% in 2023 from 76.5% of GDP in 2022. “Certainly, the numbers are ugly, just not as ugly as the gloomiest estimates.”
XP Investimentos also expected a R$106.9 billion (1% of GDP) deficit for the central government in 2023, with the end of relief of taxes. Without it, the deficit would go to R$161 billion (1.5% of GDP).
For the consolidated public sector (central government, states, municipalities, and state-owned companies), Ryo Asset’s deficit projection of 1.5% of GDP did not fully account for the fuel tax reductions. Now, it may be close to 1% of GDP. The BRCG consultancy foresees a deficit in the consolidated public sector of around 0.5% of GDP in 2023, already incorporating not only the return of federal taxes but also a third of the equivalent ICMS taxation, says Livio Ribeiro, partner at BRCG and associate researcher at the Brazilian Institute of Economics (FGV Ibre).
*By Anaïs Fernandes, Rodrigo Carro — São Paulo, Rio de Janeiro
Source: Valor International