TCU points out the possibility of a deficit of up to R$55.3 billion and failure to meet the target in 2024

The Federal Court of Auditors (TCU) endorsed warnings about the possibility of the 2024 budget containing “overestimated” revenue, which would put the zero deficit target at risk, in addition to pointing to the need for the government to review downwards the growth in primary expenses, considering that the sustainability of Public Sector Net Debt (DLSP) is not expected to be achieved in the next ten years. For the TCU's technical area, whose position was endorsed by the Court's ministers, there is a chance that the Executive will record a deficit of up to R$55.3 billion this year, which would result in non-compliance with the fiscal target.

The conclusions, which still reinforce doubts about the ability to collect the package of R$ 168.5 billion in extra revenue, were approved this Wednesday, 17th, by the TCU plenary.

“In the Union's Annual Budget Bill for the 2024 financial year, the estimate of Net Federal Primary Revenue at 19.2% of GDP is far above what was observed in recent years, indicating that it is overestimated, which leads to the possibility of having a primary deficit of up to R$55.3 billion and failure to meet the fiscal result target proposed in the LDO Project for 2024”, he states.

The topic was addressed in the monitoring process on compliance with the 2024 budget bill. Despite not containing determinations or recommendations, the agreement and its warnings will be forwarded to the Joint Budget Committee (CMO) of Congress and government bodies, like the Farm.

Although the budget piece has already been approved by Congress, the case's rapporteur at the TCU, minister Jhonatan de Jesus, noted in his vote that this fact does not change the conclusions of the Court's Specialized Audit Unit in Budget, Taxation and Fiscal Management. The area's report was approved in a trial that lasted just a few seconds on Wednesday afternoon. The ruling, however, contains 51 pages, and observations also made by the minister-rapporteur.

In his written vote, Jhonatam de Jesus highlighted that the government did not present to Congress the methodology by which it estimated that the measures in the extra revenue package will generate R$168.5 billion this year. The minister cited, for example, the uncertainties regarding the potential of the law on taxation of high-income funds, the text of which was changed by Parliament, and the fall of President Luiz Inácio Lula da Silva's (PT) veto on the continuation of payroll tax relief. of payments, the tax exemption of which is estimated at R$12 billion by the Treasury.

In addition to issuing warnings about the level of revenue and expenses foreseen in the proposal, the Court also reinforced doubts about the economic team's calculation that there will be savings of R$12.5 billion in the INSS budget this year. Without “adequate” detail on how the government will be able to achieve this feat, the technical area stated that it was “impossible” to carry out an accurate analysis on the topic, making it unclear whether the projection is feasible. “In view of the lack of clarity regarding the obtaining and transparency of these values”. He pointed.

Primary revenue expectations are 'optimistic'

The technical area of ​​the Federal Audit Court (TCU) classified as “apparently optimistic” the government’s expectation that the Net Federal Primary Revenue this year will be 19.2% of GDP, a level “much higher” than what was observed in the last years. The lack of credibility regarding the number is one of the reasons that led the Court of Auditors to conclude that there is a possibility of the Executive ending the year with a deficit of R$ 55.3 billion (-0.5% of GDP), against the zero deficit target set by the economic team.

To analyze the government's revenue, expenditure and fiscal target guidelines to prepare this year's budget, the technical unit used its own estimates. For net revenue, for example, it used the index of 18.7% in relation to GDP.

“Based on the values ​​calculated, the primary result estimated in the PLOA for 2024 of a surplus of R$2.8 billion meets the target proposed in the PLDO 2024, of a result of 0% of GDP, with the exception, however, that a primary deficit may occur of up to R$ 55.3 billion, if the premises adopted by this inspection team are met”, warned the TCU, considering, however, that the current situation is “quite uncertain”, which could result in “significant fluctuations in the results as a result of legislative measures that are being debated”.

Despite contradicting the economic team's forecast, the TCU's estimate is less pessimistic than the market's. In the latest Mercado Focus report, the median projection of fiscal shortfall for 2024 remained at 0.80% of GDP.

The Court's Specialized Audit Unit for Budget, Taxation and Fiscal Management also draws attention to the fact that, “contrary to optimism for 2024”, there is a recent trend of reducing revenues entering the government's coffers. “The PLOA 2024 estimate of 19.2% for 2024 appears to be overestimated compared to recent years and is only lower than the record of 20.2% achieved in 2010”, notes the technical area.

Debt

The TCU also looked into the sustainability of public debt, opining that it would be important to limit the growth of primary expenditure to a rate lower than 70% GDP growth, as established in the new fiscal framework, even citing a level of 60%. %. “The factors that affect debt sustainability are GDP growth, interest rates and primary results. The only factor under government control is primary results. The other factors may be partially affected by economic policies, but the history does not favor more optimistic projections”, noted the technical area.

Taking this scenario into account, the TCU recalled that average GDP growth was just 1.6% per year in recent years, well below the government's projections for the coming years. Real interest rates have also been well above the 4% annual rate used in the less optimistic projection of the Court of Auditors' technicians. “It is not the purpose of this analysis to carry out simulations for the trajectories of the DLSP Public Sector Net Debt, it is only worth highlighting the worrying situation for the sustainability of public debt”, he concluded.

The report, finally, points out that the technical unit even asked the National Treasury to explain the strategies that will be used in the budget guidelines laws to make the primary result target compatible with debt stabilization and sustainability. In response, the Treasury body stated that the guidelines, restrictions, scenarios and policy instruments will be made compatible in due course during the preparation of the Annex of Fiscal Targets. “This process will develop throughout the first months of 2024, and will be completed by the date of submission of PLDO 2025 to the National Congress, on April 15 of next year”, responded the Treasury.