08/22/2024 – 22:04
The Federal Court of Auditors (TCU) concluded that the government’s projections for the primary result in 2025 present a “double risk”, due to the possibility of revenue shortfalls and an increase in mandatory expenses. The agency also draws attention to the limitations in the rules for contingency spending. The warning was made to the economic team in a report analyzing the 2025 Budget Guidelines Bill (PLDO), sent by the Executive Branch in April to the National Congress.
TCU auditors assessed that the estimates presented in the PLDO for 2025 regarding net primary revenue are “optimistic”, being R$35.6 billion to R$50.7 billion above the projections made based on market data. The discrepancy in the data would explain the risks of revenue shortfall next year.
Experts also point out that increases in total primary expenditure exceed the real growth limit of 2.5% per year allowed by the fiscal framework, which leads to the compression of discretionary spending, with the exception of mandatory amendments and the constitutional minimum levels for health and education. The latter, despite being in the discretionary category, are mandatory.
The TCU even points out that estimates for net discretionary spending on amendments and constitutional minimums predict a drop from R$100.9 billion in 2024 to R$11.7 billion in 2028, a reduction of 88%. “If there is no substantial change in the composition of spending, the compression of those expenses may increase the risk of shutdown of the public sector or increase the incentive to abandon the fiscal anchor brought by the RFS fiscal framework”, mentions the report.
The experts say that the debt estimate presented in the PLDO 2025 is based on the premise that expenditure will grow at a slower rate than revenue throughout the period. However, the projection may be unrealistic if there is no review of mandatory or discretionary expenditures linked to revenue, they say.
The agency also highlights that the project sent by the government deals with the review of expenses with a focus on reviewing and reducing irregular benefits, “but without mentioning specific legislative proposals to address the challenge of mandatory expenses”.
“By assuming that measures to control expenditure growth, as established by the RFS fiscal framework, will stabilize the debt, it is understood that there will be an expectation of changes in the constitutional and infra-constitutional norms that govern mandatory and discretionary expenditures linked to revenue in the medium term”, says the document.
The report also points out that targeting the lower limit of the fiscal framework as a reference for the primary result and adopting contingency measures may increase the risk of non-compliance with fiscal targets, in addition to affecting the credibility of the rules and compromising the management of public accounts in the future. The strategy has already been adopted by the government this year.
“In this way, fiscal policy control via limitation of discretionary spending will not be guided by the center of the target. Consequently, in situations of revenue shortfall, the result tends to approach the lower limit. Conversely, in situations of excess revenue, there are no impediments to the government increasing spending until the available fiscal space is exhausted again, taking the primary result back to the lower limit,” they assess.
The TCU points out that the strategy of targeting the lower limit of the band, although not illegal, may still generate long-term inconsistencies in the debt trajectory, depending on the primary result projections used in the estimates.
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