Result includes social tax PIS/Pasep and revenue from sale of electric utility Copel and excludes court-ordered payments

01/30/2024

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Rogério Ceron — Foto: Washington Costa/MF

The Lula administration posted a primary deficit of R$230 billion in its first year, the worst result since 2020, as reported on Monday (30) by the National Treasury. Of that amount, R$92.4 billion comes from court-ordered payments of federal debts at end of the year and must be excluded for the achievement of the primary result target as per decision by the Federal Supreme Court. As a consequence, the primary deficit was R$138.1 billion, or 1.27% of the gross domestic product.

The 2023 result is lower than the target of a R$213.6 billion deficit set for 2023. However, the amount considers revenue of R$24 billion from social tax PIS/Pasep as primary, as well as revenue of R$2 billion resulting from the sale of electric utility Copel. Both revenues are not in line with what says the Central Bank, responsible for calculating official statistics. Therefore, on February 7, when the Central Bank releases its data, the primary deficit of the central government will hover around R$256 billion (with court-ordered payments) and R$166 billion (without court-ordered payments, which is considered for the target).

Although the primary result was within the target, it is the second worst deficit since official records began, second only to 2020, the first year of the COVID-19 pandemic, when the deficit was R$939.9 billion, in adjusted values. The 2023 deficit was also greater than those recorded in the first year of both Temer and Bolsonaro administrations, second only to the first year of former President Dilma Rousseff’s second term, when the central government posted an inflation-adjusted deficit of R$183.1 billion in 2015.

In addition to lower-than-expected revenue in some fronts, especially the Social Contribution over Net Profit (CSLL), which fell 10.4% (loss of R$ 17.6 billion), the increase in other expenses also played a role: there was an increase of 42.4% (R$98.7 billion) in programs whose expenditures are under control of flows, such as Bolsa Família, which has expanded, and a 7.9% increase in social security benefits (R$66.4 billion).

Furthermore, the central government’s negative result was also driven by the payment of R$20 billion in offsets to states, resulting from reductions in Tax on Circulation of Goods and Services (ICMS) rates in 2022, during the election season; R$6 billion from the allocation to the secondary education fund; and R$1.4 billion from a BNB capitalization carried out in December. National Treasury Secretary Rogério Ceron argued that the deficit would have been R$109 billion (1% of GDP) except for those three extraordinary factors, in addition to the court-ordered payments. According to his opinion, the primary result would be consistent with the target the National Treasury had been pursuing since mid-2023.

The federal government posted a real drop in revenue of 2.8%. The most significant drop was in concessions and permits (82%). Dividends and shares of state-owned companies also plunged (44.7%).

According to Mr. Ceron, tax revenue was also impacted by other factors: tax offset made by companies due to the so-called thesis of the century, which struck out the ICMS from the PIS/Cofins calculation base, generating tax credits for companies—the government is now trying to address this issue through Provisional Presidential Decree 1,202, which curbs tax offset; the Events Sector Emergency Program (Perse) tax waiver, around R$17 billion, compared to the expected R$4 billion; and lower-than-expected inflation.

On the other hand, funds that have been released but were not used by ministries totaled R$19.8 billion in 2023, with a positive impact on the primary result. The “pooled” amount was slightly below that recorded in 2022, of R$20.7 billion, in current values.

For 2024, Mr. Ceron said preliminary data from January point to an increase in revenue, which creates a positive scenario for a zero deficit this year, in line with the target set in the federal budget.

Finance Minister Fernando Haddad commented that this year’s target depends on a good interaction with the Judiciary and the Legislative branches. “The target is set in agreement with Congress, but the primary result depends a lot on this good interaction with the Judiciary and the Legislative [branches]. As far as we are concerned, we will continue with the same commitment [in 2024],” Mr. Haddad said.

Rafaela Vitória, chief economist at Banco Inter, notes “the fiscal deterioration seen in 2023 is quite worrying.” “Not only did the government experience a drop in revenue, which was 2.8% below 2022 adjusting to inflation, but also expenses grew at an alarming rate of 12.5% above the IPCA,” she pointed out.

“Although fiscal expansion did not boost inflation last year, which subsided due to the fall in raw materials and the counterpoint of a restrictive monetary policy, there is concern about the continuation of such expansion, which is well above projections within the new fiscal framework,” the economist argued.

Felipe Salto, chief economist and partner at Warren Investimentos, points out that the 2023 result “was strongly affected by court-ordered payments.” “But it was important to break the snowball before it became unmanageable,” he notes. “For 2024, the key challenge is not a zero deficit. It’s about reducing the deficit and fully complying with the framework,” he argued.

*Por Guilherme Pimenta, Jéssica Sant’Ana — Brasília

Source: Valor International

https://valorinternational.globo.com/