2023-11-06 09:40:04
Agência Brasil – The National Congress is expected to vote in the last days of November on the Budget Guidelines Law (LDO), which establishes the rules for preparing the 2024 public budget. Among different norms and principles for the future budget, the LDO sets the level of fiscal balance between expected revenues and expenses.
Initially, the LDO project predicted that the volume of resources available in the federal public administration would equal the total expenditure and investments in the same value: R$5.391 trillion. This week, however, the Minister of Finance, Fernando Haddad, admitted that “there is erosion of taxes”, due to the reduction in the calculation base of the Social Contribution on Net Profit (CSLL) and the Corporate Income Tax ( IRPJ) and because companies are removing the Tax on Circulation of Goods and Services (ICMS) from the PIS/Confins calculation base.
Having admitted the problem, Haddad stated that the federal government will “seek fiscal balance in all fair and necessary ways to have a better country.” Despite the explanations given and commitments reaffirmed by the minister, there is strong expectation in the financial market as to whether next year’s expenses will in fact be covered by the revenue to be determined, or whether there will be a deficit. And, if there is a deficit, what will be the proportion: 0.25% or 0.5%.
For professor Pedro Linhares Rossi, from the Unicamp Institute of Economics, who studies the effects of fiscal policy on social rights, “there is a certain uproar in the market” surrounding the forecast. “Whether the deficit is zero or 0.5% makes no difference in terms of debt variation [pública]. The impact is very small. Debt has a dynamic that depends on several factors. “
“The predominant narrative, which appears all the time in the media, voiced by market economists, treats the fiscal issue as a path to deeper reforms to constrain public spending. There has been an idea, since 2015, that it is necessary to cut public spending, and the fiscal result is used as an instrument for this constraint”, ponders Rossi (BVMF:).
In the professor’s assessment, the country’s economy is not at risk and any impacts will be “symbolic” and “restricted to short-term situations”. According to Rossi, fiscal variables are fundamental in the medium and long term, but there is no point in seeking debt stabilization or generating spending cuts which, in turn, generate unemployment and a drop in growth. There is a relationship between public spending and growth that must be considered when defining fiscal variables.”
No insolvency
According to Rossi, the debt is under control, and the State will continue to normally remunerate investments in public bonds. “The insolvency of the public sector, of public bonds, is completely off the horizon. There is no reason in this sense to demand zero deficit. What remains on the market’s radar is a convention that fiscal variables have an impact on the short-term market. This actually happens when the majority of agents think this way.”
For him, the country needs more investments to achieve greater economic growth, which also boosts revenue and creates better conditions for fiscal balance. “What is needed is to define what you want to change, what you want in terms of public spending and, from that, define what the variables are on the fiscal side, revenue and expenditure, and how to build results and fiscal targets for make this country project viable.”
The economist proposes to investors, the government and society to discuss new agendas. “Instead of discussing the ecological transition, changes in the Brazilian economy, that is, economic development, we are discussing a fiscal variable whose importance is difficult to discern in the public debate. I would say that this importance is overstated in the public debate.”
Falling debt
As reported by Brazil Agency, the (DPF) is falling. According to the latest result presented by the National Treasury, the volume fell to R$6.028 trillion in September, a decrease of 3.02% compared to the previous month
Public debt is contracted by the government to finance expenses not covered by tax collection. When it needs resources, the National Treasury issues papers, promissory notes, revolving bonds, loan policies and remunerates investors, depending on the payment period and volume of money raised.
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