Government changes calculation to increase fiscal surplus. Understand the maneuver – THIS IS MONEY

Minister Paulo Guedes, who changed the calculation of the fiscal result. Surplus of 2.7% of GDP in 2021 drops to 0.75% when using conventional metrics (Credit: Edu Andrade/Ascom/Ministry of Economy)

The Structural Fiscal Result (RFE) for 2021, presented by the team of the Minister of Economy, Paulo Guedes, was the best since 2008. The good news, however, hides a half truth. The consolidated number is actually higher, but a maneuver was responsible for the result.

The calculation of the last year started to disregard non-recurring expenses (in the case of fight against Covid) and windfall revenues (such as privatization) to measure the fiscal situation “without extraordinary effects”. The so-called “GDP at the potential level” was also used as a basis for calculation, which excludes the effects of low growth on public accounts, for example. A price per barrel of oil was still fixed based on a medium-term equilibrium price, but which excludes the effects of highs in 2021.

With all these questions in mind, the document points out that the consolidated public sector (which includes the central government, states and municipalities) had a surplus of 2.37% of GDP in 2021. If the calculation maintained the assumptions used in previous years, the result would be 0.75% of GDP.

For the professor of macroeconomics at the Federal University of ABC (UFABC), Sérgio Montes Fagundes, the indicator presented has a makeup that makes it difficult to understand the current Brazil. “The government loses the ability to show whether or not there is an improvement in the financial health of the state and its public accounts,” he said. This calculation structure had already been used in 2008 (when there was a surplus of 3.3%) and in 2013 (when it was 0). On both occasions, the result was asked about the ability to photograph the exact moment in Brazil.

In 2020, using the more conventional metrics of calculation, the result was a deficit of 0.49%. In 2019, the number was negative by just 0.07%.

For the Secretary of Economic Policy, Pedro Calhman, one of the reasons that ensured this result was the law that vetoes readjustments to public servants for two years, due to the pandemic. In relation to the Budget, he highlighted the cuts applied by all entities of the federation and highlighted the effects of the Social Security reform on the payroll of retirees and pensioners.

In 2022, the scenario changes. High inflation pushes up public debt interest and there is still an expectation of a general increase for civil servants (which will be around 5%, according to a forecast made by Guedes on the 24th at the World Economic Forum, in Davos, Switzerland). Robust electoral expenditures are also expected, ranging from parties to structuring and election day logistics.

There will also be greater expenses with the increase in transfers in Auxílio Brasil, the entry of new sectors in the exemption package and all the potential benefits that the government plans to use in the election year (from subsidies to debt forgiveness for companies).

The result of this will only be known in 2023 and, depending on who takes the presidential chair at Palácio da Alvorada, the result presented can be 2.37% or 0.75%, depending on who (and how) does the math.