Spending projection was raised by R$5.6bn but experts see a higher increase

04/04/2024

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Felipe Salto — Foto: Ana Paula Paiva/Valor

The federal government’s estimated spending of R$914.2 billion on social security benefits this year is still underestimated, even after a recent increase of R$5.6 billion, projections from experts in public accounts, consulting firms, brokerages, and banks show. The projections range between R$923 billion and R$932.5 billion, indicating a potential gap between R$8.8 billion and R$18.3 billion compared to the government’s figure.

By underestimating spending on social security benefits, the government has minimized the necessity for a more extensive freeze on non-mandatory expenses across other ministries. Furthermore, it has prevented a deterioration in the fiscal result, currently estimated at a deficit of R$9.3 billion for the year, within the primary target range. However, nearing the end of the year, if the discrepancy is substantiated, there will be no alternative but to recognize the actual expenditure figure, given that social security benefits are mandatory expenses.

In February, the allowance known as sickness benefit exceeded 1.4 million beneficiaries, a 33.3% increase compared to the same month of the previous year. At the same time, total spending on this benefit in the last 12 months reached R$34 billion in January, the last available data. This amount represents a 22% increase compared to the same month in 2023.

Tiago Sbardelotto, an economist at XP, said that the major discrepancy in projections is regarding the growth rate of the number of beneficiaries. “We are projecting a growth rate of 2% [of beneficiaries], which is more or less compatible with what we have had in recent years. I would even say it is a conservative rate. The government, on the other hand, is implicitly adopting a rate close to zero because it is counting on management improvements and fraud combat,” said the economist. The bank estimates that social security benefits will consume R$929.9 billion from the federal budget in 2024.

“We do not believe that the government will actually implement [the savings measures], and the data we have verified so far shows that these expenses are in line with our projection and are above what the government was expecting,” he added.

Fábio Serrano, an economist at BTG Pactual, shares a similar perspective. “The key difference compared to our estimate stems from the government’s assumption of saving around R$10 billion, attributed to the implementation of faster procedures for approving temporary incapacity benefits, such as sickness benefits,” he said.

“Given the strong growth in the number of beneficiaries and the slow reduction in the queue of requests, we have adopted more conservative assumptions and have not assumed this saving,” he said, noting that BTG’s projection is for government spending of R$927 billion on social security benefits this year.

Jeferson Bittencourt, an economist at ASA Investments and former secretary of the Treasury, also said that there are signs of an acceleration in the pace of requests for social security benefits. “Studies have shown a high rate of benefit grants, as the government has made efforts to reduce the queue, but it has been reduced only slightly,” he said.

ASA Investments projects spending of R$926 billion for this budget line in 2024. Mr. Bittencourt said that, despite actions to tackle fraud, the government suspended in-person proof of life this year for 4.3 million social security beneficiaries for whom automatic verification was not possible or due to inconsistencies.

“We see the pace of benefit cessation not contributing much to expenditure containment because, on the one hand, the government is conducting a thorough review, seeking to reduce fraud and tackle inefficiencies, but on the other hand, it has decided not to suspend benefits for lack of proof of life,” he said.

This year’s budget was approved with a forecast of government spending of R$908.7 billion on social security benefits. Valor had already shown that the figure was underestimated by up to R$20 billion. In March, when reassessing revenues and expenses, the government increased its projection by R$5.5 billion, reaching R$914.2 billion.

According to Felipe Salto, chief economist at Warren Investimentos, the amount will have to be increased in the next bi-monthly reports evaluating the budget. “The numbers in the bi-monthly report are underestimated, despite the correction made when the government announced the document,” said Mr. Salto.

“The dynamics of Social Security are under considerable pressure and will require a significant freeze of discretionary spending over the next few months. This would still need to be complemented by an equally significant cost cutting, even with the recovery of revenue.” Warren projects R$932.5 billion in social security benefits.

Economists Marcos Mendes and Rogério Nagamine estimate that this budget line will require disbursement of at least R$923 billion this year, considering court rulings. Mr. Nagamine said that there is uncertainty about this projection because the government paid part of the 2024 social security precatórios (IOUs issued by the judiciary branch) at the end of 2023, but emphasized that the approximately R$10 billion in savings that the Ministry of Social Security has been estimating “does not seem likely to happen,” which will require an upward revision of expenses in the next bi-monthly reports.

Mr. Nagamine said that in 2023, the government also adopted the practice of underestimating spending on social security benefits throughout the months, having acknowledged its real impact on the budget only at the end of the year. “In 2023, in the first bi-monthly revision, the initial projection was for a financial expense with benefits of R$825 billion, but the year ended with a financial expense with benefits of about R$835 billion. That is, there was an underestimation of about R$10 billion,” he said.

Contacted for comment, the Ministry of Planning and Budget referred questions to the Ministry of Social Security, which “is the agency responsible for preparing and sending the projection in the process of preparing the bi-monthly report.” The Ministry of Social Security did not respond to Valor’s request for comment.

*Por Jéssica Sant’Ana, Marcelo Osakabe — Brasília, São Paulo

Source: Valor International

https://valorinternational.globo.com/