Fiscal risk could reach R$ 430 billion in 2023, according to Ibre, from FGV

Uncertainty about the next government’s fiscal policy is one of the main concerns for 2023. The deficit in public accounts could reach R$ 430 billion, equivalent to 4.2% of GDP, according to calculations by economists from the Brazilian Institute of Economics. from Fundação Getúlio Vargas (Ibre/FGV). The study is included in the Ibre Macro Bulletin, ahead of CNN.

Economists Manoel Pires and Bráulio Borges account for the maintenance of Auxílio Brasil at R$ 600, federal tax exemptions and other factors that can considerably increase the cost to the public coffers. Due to the size of the invoice, the thesis about the need for a waiverr, or suspension of fiscal limits, to tidy up the federal budget without compromising the country’s credibility.

“Given this fiscal pressure, it is very important to find good solutions. The fiscal is a chronic problem in the country, which ends up maintaining high interest rates for longer. We already know that it is not sustainable to keep the budget as it is, just as it is not reasonable to sign a blank check. A new government needs to free itself from the shackles to resolve short-term budget issues and organize a more structured fiscal framework for the long term,” said Manoel Pires.

Pires and Bráulio Borges recall that the war budget, to deal with the pandemic in 2020, and the change in the 2016 fiscal target, to accommodate the deficit in the accounts, were good instruments to deal with a demand of a lot of political pressure and, at the same time, time, a basic need, as is the case with Auxílio Brasil.

“We tried to quantify the fiscal liabilities that will have to be equated because they impact the Union’s primary result and the dynamics of the public debt next year. Some of the liabilities are certain, such as the maintenance of the R$600 Auxílio Brasil. Others are uncertain, such as compensation to states for the reduction in ICMS. Even so, it is an expressive amount of resources, more than 4% of GDP”, highlights Borges.

In the study prepared for IBRE’s Macro Bulletin, economists divided the forecasted fiscal liability for 2023 into four categories.

The first concerns expenses not covered in the budget and which put the expenditure ceiling in check. Here are the Auxílio Brasil in R$ 600, the readjustment of the federal civil service, which is not yet defined, and the review of discretionary expenses. In this regard, the account exceeds R$ 120 billion, about 1.2% of GDP.

Among the measures with a negative impact on revenue, which affect the federal government’s primary result, are the recent exemptions on fuel and other products and the probable readjustment of the income tax table for individuals. They take into account the probability of a normalization of revenue in the oil sector, with the drop in the price of a barrel on the international market. Here, the total cost reaches R$ 86 billion, 0.8% of GDP.

There are other events with negative financial impacts, such as the increase in interest rates, which increases the cost of public debt, and the suspension of payment of debt installments that states have with the Union. Added together, these two events could have a fiscal cost of around R$ 77 billion, around 0.7% of GDP.

Finally, with a more uncertain impact on the mapping carried out by the IBRE economists, are the payment of precatories and the compensation to the states for the reduction of ICMS on fuel, energy, transport and telecommunications. The likely cost amounts to R$144 billion, or 1.4% of GDP.

“The next government, whatever it is after the election, will need to show that it has a plan to deal with this fiscal situation next year. In Brazil, there are too many rules and too few instruments to enforce them. Improving what exists today, prioritizing essential public policies and showing how much it spends and where it takes the resources from, are the ideal choices that the country needs to make”, warns Manoel Pires.

The maintenance of the spending ceiling, the government’s main fiscal anchor, is addressed by the two main candidates for the Presidency of the Republic. Luíz Inácio Lula da Silva rejects the control mechanism and wants to revoke it. The PT candidate says he will not be irresponsible, but has not yet presented a proposal to deal with increased spending. President Jair Bolsonaro still defends the Teto, but wants a solution to fulfill campaign promises.

Analysis by analyst Renata Agostini shows that one of the ideas thought up by Paulo Guedes is the adoption of a limit on the public debt, with spending flexibility depending on the trajectory of the debt and the country’s economic growth. Among the economists who accompany Lula, the idea of ​​a waiver of fiscal limits is discussed.

“Whatever the solution chosen by the next government, it will demand a lot of political coordination with the National Congress, good communication with the market and with economic agents. The Spending Ceiling is in the Constitution, but a change in fiscal policy also affects several actors at the same time”, points out Manoel Pires to the column.