Economic team has been working on expenditure review agenda for 60 days
07/03/2024
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Fernando Haddad — Foto: Cristiano Mariz/Agência O Globo
Finance Minister Fernando Haddad will meet this Wednesday with President Lula to present proposals to ensure compliance with the fiscal framework until 2026. He avoided mentioning a date for the announcement of the measures and emphasized that the final decision on which paths will be taken lies with the president.
His statement comes amid demands from the financial market for spending cuts, as the fiscal adjustment has been carried out solely on the revenue side for a year and a half. From the expenditure perspective, the government has increased spending since the so-called Transition proposal to amend the Constitution and has only made registration revisions of social benefits.
According to Mr. Haddad, the economic team has been working on the expenditure review for 60 days, despite not having presented anything concrete yet. “The president has summoned the ministries of Planning and Management, the chief of staff and the Ministry of Finance not only for the preparation of the 2025 budget but also for the budget execution of 2024.”
Another concern of market agents is what the government will do in the May-June report on the evaluation of revenues and expenditures for this year’s budget, which will be released on July 22. Valor has learned that the economic team estimates that a potential freeze plus a cost-cutting plan could reach, at most, R$10 billion. The figures are still being reviewed by government experts and may change.
These experts see it as possible to implement a freeze (due to the risk of exceeding the spending limit) and a cost-cutting plan (due to the risk of not meeting the target range) simultaneously—which, if confirmed, would be unprecedented for this government. The practical effect for the affected ministries would be the same: the freezing of funds until the budget situation improves and the freeze can be lifted.
However, the preliminarily estimated amount is much smaller than expected by the market, which points to the need for a total spending freeze of up to R$40 billion.
On Monday, Mr. Haddad said that the spending freeze “will be as large as necessary for our goals to be achieved, both from the expense perspective, which has a cap, and from the revenue perspective, so that we approach, within the range, the 2024 target.”
The target for this year is a zero deficit, but the government has a buffer of up to R$28.8 billion. This is the figure the team is working with to determine the need for a spending freeze. The freeze occurs when there is a risk of exceeding the annual spending limit, according to the new fiscal framework rules.
Valor has also learned that the Ministry of Finance does not consider it essential for the public spending watchdog TCU to respond at this moment to a public inquiry about the maximum allowable cost reduction for the year, as the amount to be announced in the May-June report will be well below projections.
There is a disagreement between the ministries of Finance and Planning on whether a provision included in the 2024 Budget Guidelines Act is enough to provide legal security to the interpretation that the maximum allowable cost reduction this year is R$25.9 billion, ensuring a minimum real growth of 0.6% in spending.
Government experts argue that the 0.6% is budgetary and does not apply to financial execution itself. Thus, the maximum reduction of expenses could reach up to R$56 billion.
TCU experts, when analyzing the request, understood that the limitation sought by the Ministry of Finance could constitute a violation of the Fiscal Responsibility Act and the public finance law, potentially leading to punishment for public officials. The TCU members may or may not follow the auditors’ conclusions.
The inquiry was scheduled for judgment in the TCU’s plenary session on June 19 but was removed from the agenda. The evaluation among TCU members is that the topic is politically sensitive.
*Por Jéssica Sant’Ana, Murillo Camarotto, Gabriela Pereira — Brasília
Source: Valor International