03/15/2024 – 21:07
The National Treasury pointed out in a report released this Friday, the 15th, that, without additional measures to increase revenue, the government would not be able to meet the goal of generating a surplus in the primary result of 2025 and 2026. The scenario would force the economic team to adopt the triggers provided for in the new fiscal framework. For example, if you fail to meet the target in the next year and the following, the expense limit could only increase in 2027 and 2028 at a rate of 50% of the increase in revenue – instead of 70% of the original rule. Furthermore, the fiscal framework provides that, if non-compliance occurs for two consecutive years, additional triggers are activated, such as the prohibition of salary increases in public service.
While the current budget guidelines law predicts a surplus of 0.5% of GDP in 2025 and 1% of GDP in 2026, the Treasury's “base” scenario, which only considers the revenue package already approved in Congress, would lead to deficits of 0.5% next year and 0.4% in 2026. “In this way, it is clear that the base scenario (without new revenue measures for 2025 and 2026) does not promote the goals established in the LDO beyond 2024, demanding fiscal effort to achieve them”, wrote the Treasury in the new Fiscal Projections report, which also prepares a reference scenario in which the primary targets are met through additional efforts to increase the Union’s revenue level and guarantee the stabilization of public debt.
The Treasury's base scenario considers that the goal of closing the deficit will be met this year, since the Treasury package to boost revenue was largely approved by the Legislature. As shown by the Broadcast, the department even increased the estimated gain from the measures, from R$168.5 billion to R$170.8 billion this year, in addition to a permanent gain of around R$74 billion per year. This, however, is not enough to guarantee that the Union continues to perform well in the fiscal aspect for the next two years. There is still a need for a fundraising effort of 1% of GDP in 2025 and 1.3% of GDP in 2026.
The Treasury also calculates that the targets for the next two years would not be met without additional measures, even with expenditure contingencies. This is because the government understands that the budget blockage should only be limited to an amount that preserves the minimum advance of 0.6% of spending. As a result, the contingency that would be applied in 2025 and 2026 would be R$38.1 billion and R$39 billion, respectively.
“For the years 2025 and 2026, even with the expenditure contingency provided for in the LDO, it is not possible to reach the lower limit of the primary result target, which implies application of the proportion of 50% of the RLA in the years 2027 and 2028” , pointed out the Treasury. The body also notes that this contingency (which is equivalent to 0.3% of GDP) in the two years would exceed the payment of court orders issued, and that, therefore, there would be a slight reduction in expenditure in proportion to GDP, which reaches 18.7% , compared to the 18.9% of GDP observed in 2024.
“Between 2026 and 2027, there will be a sharper drop in primary expenditure (0.5 pp), which reaches 18.3% of GDP in 2027, as all precatório expenditure is once again subject to the expenditure limit , reducing the space for discretionary expenses and total expenditure as a whole. To this effect, there is a reduction in the real growth of the expenditure limit in 2027, the year in which the limit increases by 1.4%, after growth of 2.5% for two consecutive years”, calculated the Treasury.
With the trigger activated in 2027, net revenues would exceed primary expenses, resulting in a surplus. As a result, the primary balance would reach 0.1% of GDP in 2027 and grow until reaching 1.3% in 2033.
The Treasury also notes that the report does not consider mandatory spending review measures that are underway in the government and which, the agency points out, could contribute to increasing the fiscal space for discretionary expenses, or, alternatively, to better primary results.
#Treasury #efforts #revenue #target #missed