Brazil’s Ministries of Planning and Finance announced that the possibility of exceeding the federal spending ceiling caused the government to temporarily suspend 1.5 billion reais from the general budget for the year 2023.
In May, the economic team had a contingency of 1.7 billion reais, which brings the total blocked this year to 3.2 billion reais, a value considered low compared to the total value of primary expenses, estimated at 1.948 trillion reais for this year.
The blockade occurs because the estimate of primary expenses above the spending ceiling increased by the same amount, 1.5 billion reais. Although the Transitional Constitutional Amendment, approved at the end of last year, effectively abolishes fiscal targets for 2023, the spending cap will only cease to apply when the new fiscal framework has been approved by Congress.
According to Viviane Varga, Assistant Secretary of the National Treasury, income predictions should improve in the coming reports as a result of actions authorized or to be approved by Congress, such as the initiative to reform the voting mechanism in the Administrative Council of Tax Appeals and the new fiscal framework.
The primary deficit forecast was also raised by 9.2 billion reais, according to the report. The primary deficit is the negative result of the government’s accounts before interest on the public debt is deducted.
The Federal Budget Secretary of the Ministry of Planning, Paulo Bijos, stressed that the expected deficit remains below the target of R$ 238 billion for the Central Government (National Treasury, Social Security, and Central Bank) established by the Budget Guidelines Law (LDO) of 2023.
The main reason for the revision of the primary deficit was the fall in Social Security revenue caused by the lower growth of the wage bill due to high interest rates. At the beginning of the year, the Minister of Finance, Fernando Haddad, estimated that the deficit would close in 2023 at around 100 billion reais.
The forecast for the total primary revenues of the union was reduced by 800 million reais. Social Security had a drop of 9.3 billion reais in revenue.
However, this decrease was partially offset by the increase in revenue from taxes associated with profit (corporate income tax and social contribution on net income).
Regarding mandatory expenses, which cannot be contingent, the estimate was raised by 7.2 billion reais. Of this total, 4.6 billion reais correspond to transfers to states because of the agreement reached with the Federal Supreme Court (STF) for compensation for the fall.
