2024-01-29 16:15:47
© Reuters.
The discharge of court orders following an agreement with the Federal Supreme Court (STF) caused the Central Government – National Treasury, Social Security and Central Bank – to close 2023 with the second largest primary deficit since the beginning of the historical series. Last year, the result was negative at R$230.54 billion, second only to 2020, when the deficit reached R$743.25 billion due to the Covid-19 pandemic.
The primary deficit represents the negative result of government accounts without interest on public debt. According to the National Treasury, without the payment of court orders, the Central Government’s accounts would have closed last year with a negative result of R$ 138.1 billion, equivalent to 1.3% of the Gross Domestic Product (GDP, sum of goods and services produced in the country). Without the financial aid of around R$20 billion for states and municipalities, the deficit would have fallen to R$117.2 billion, 1.1% of GDP.
In December alone, the primary deficit totaled R$116.15 billion, driven by the payment of outstanding court orders. Government debts with a definitive court ruling, the court orders were paid in installments or postponed after a constitutional amendment in 2021. Last year, the government wanted to pay off the debt to avoid a liability of R$250 billion at the end of 2026.
The December deficit was the largest ever recorded for the month since the beginning of the historical series, in 1997. Without the court orders, informed the Treasury, the negative result would be R$23.8 billion. This value would be below the estimate of financial institutions. According to the Prisma Fiscal survey, released every month by the Ministry of Finance, market analysts expected a negative result of R$35.5 billion, without considering the payment of court orders.
The primary result represents the difference between revenues and expenditures, disregarding interest payments on public debt. Despite the payment of court orders, the deficit remained within the target of R$231.5 billion for the Central Government established by last year’s Budget Guidelines Law (LDO).
In January, the Minister of Finance, Fernando Haddad, had announced a package to increase revenue and review spending to improve public accounts and reduce the deficit to around R$100 billion in 2023. At the end of November, the Policy Secretariat Econômica reported that the official primary deficit forecast was R$177.4 billion for this year, and could reach R$203.4 billion if the Central Bank’s methodology is considered. The forecast, however, disregarded court orders.
Revenues
Compared to last year, revenues fell, taking into account inflation, but expenses increased significantly due to Bolsa Família, Social Security expenses and court orders. In 2023, net revenues rose 2.3% in nominal values. Discounting inflation by the Broad National Consumer Price Index (IPCA), however, they fell 2.2%. In the same period, total expenses rose 17.7% in nominal values and 12.5% after discounting inflation.
If only administered revenues are considered (related to the payment of taxes), there was a 1% drop in 2023 compared to 2022, already discounting inflation, driven mainly by the Social Contribution on Net Profit. However, there was an increase of R$11.7 billion (39.5% above inflation) in other administered revenues, mainly due to the litigation reduction program, in which the taxpayer reached agreements with the government in exchange for closing lawsuits in justice.
There was also an increase of R$32.9 billion (5.8%) in Social Security collections, resulting from the recovery of the job market.
In relation to revenues not managed by the Federal Revenue, the biggest declines were recorded in dividend revenues from state-owned companies, which fell by R$41.1 billion (-44.7%, discounted for inflation), due to the lower receipt of transfers Petrobras (BVMF:), Caixa Econômica and the National Bank for Economic and Social Development (BNDES). Concession revenues fell by R$40.7 billion (-82%, discounting the IPCA%) due to electrical generation concessions resulting from the privatization of Eletrobras (BVMF:), which were not repeated in 2023.
Revenues from royalties, which fell by R$26.2 billion (-18.5%, discounted for inflation) in 2023 compared to 2022, due to the drop in the international market. Currently, the price of an international barrel is around US$82 after reaching US$120 in mid-2022, due to the war between Russia and Ukraine.
Expenses
Boosted by the new Bolsa Família, spending on social programs rose R$75.4 billion (42.4%) above inflation last year compared to 2023. Spending on Social Security also rose (+R$66.5 billion), with health (+R$20.6 billion) and discretionary (non-mandatory) spending on education, transport and social assistance (+R$23.6 billion).
Spending on federal employees rose R$10.2 billion (2.8%) above inflation in 2023 compared to 2022. Despite the 9% increase granted to employees of the Federal Executive Branch, approved at the end of April last year by Congress, the main factor that boosted spending was the payment of court orders, which consumed R$8.3 billion in the year of the extra R$10.2 billion.
In relation to investments (public works and purchase of equipment), the federal government invested R$82.23 billion in 2023. The value represents an increase of 72.5% above the IPCA in relation to 2022. In recent months, this expense has alternating periods of growth and decline, discounting inflation. The Treasury attributes the volatility to the variable pace in the flow of public works.
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