The Minister of Finance, Fernando Haddad (PT), announced this Thursday (12) a large package of measures with the promise of providing a fiscal improvement of R$ 242.7 billion in public accounts this year. The initiatives to reverse the deficit and put the country back on track in 2023 would be enough – even if the minister himself, in advance, admitted that the effect could be less than expected.
Under pressure from the financial market to reduce the deficit of 231.55 billion reais, aggravated by the Gastança PEC (proposed amendment to the Constitution), which authorized the expansion of spending in 2023, Haddad is betting on the cancellation of the exemptions and on extraordinary measures to raise more. One of them is a Refis to renegotiate, with discounts, debts of individuals and companies.
Initiatives to increase revenue account for the majority of the economic team’s plan (R$192.7 billion), while those to reduce expenses account for R$50 billion.
According to calculations presented by the Treasury, the combination would be enough to bring the country to record a surplus of R$ 11.13 billion this year.
However, the minister himself said in an interview with journalists that part of the measures could suffer some frustration. “If you add the goal of each action, you reset the deficit, [mas] we know that the goal of every action will not be achieved,” he said.
“Despite [o governo] take measures to zero frustration, there is a delay that will happen, there is ninety, precedence [até que medidas tributárias produzam efeito] and there are expenses that can arise, because we weren’t paid transparently by the previous government,” Haddad said.
In addition to the legal issues, the minister also cited the effects of the central bank’s interest rate policy, which could cool the economy and affect revenues.
According to him, the goal of the new government is to reduce the deficit forecast for this year, from 2.16% of GDP, to between 0.5% and 1%, i.e. up to 100 billion of R$. “Closing the year with a deficit of less than 1% of GDP is, I think, quite realistic”.
The plan includes presidential, ordinance and parliamentary orders (interim measures), which take effect immediately, but need congressional approval to take full effect.
Part of the measures may clash with group interests, such as the cancellation of tax breaks on fuel, or depend on effective compliance by taxpayers, such as incentives to reduce tax conflicts. A portion of the expected collection is also based on extraordinary shares, which will not be repeated in subsequent years.
The Treasury, however, argues that much of the adjustment will be structural. In portfolio calculations, the package is equivalent to an adjustment of 2.27% of GDP (Gross Domestic Product), of which 1.61% would come from permanent measures.
In 2024, for example, the government estimates a fiscal improvement of R$185 billion.
The measures were signed by President Luiz Inácio Lula da Silva (PT) at the Planalto Palace on Thursday, after a meeting with Haddad and ministers Simone Tebet (Planning and Budget) and Esther Dweck (Management and Innovation in Public Services). The two also attend Haddad’s presentation.
With the package, the Lula government seeks to signal a commitment to fiscal sustainability, after the increase in spending has aggravated fears in the financial market of an explosive trajectory of public debt.
National Treasury Secretary Rogério Ceron reiterated that the measures will be sufficient to prevent the debt from exceeding 80% of GDP, a very high level for an emerging country like Brazil. “Debt is stable at around 75% [do PIB]looking at a four-year horizon, reaching these levels in 2026, and a downward process would continue over time, until 2030,” he said.
He mused that the exact numbers would depend on the effects of the package, but stressed the expected improvement.
Renegotiation of disputes
One pillar of the plan targets the CARF (Fiscal Resources Board), an administrative tribunal that adjudicates cases after disagreement between taxpayers and the Federal Revenue Agency. The minister drew attention to the significant increase in the stock of cases, which rose from BRL 600 billion in December 2015 to over BRL 1 trillion by October 2022.
In an attempt to contain the growth of this liability, the Treasury intends to launch the “Litigation Zero” program, which provides for the renegotiation of private and corporate debts, with discounts and a term of up to 12 months for payment.
For natural persons, micro and small businesses, the discount would range from 40% to 50% of the total amount of the debt, including the tax that gave rise to the liability, plus interest and the fine. The conditions would apply to debts up to 60 minimum wages (R$78,120).
According to the Treasury, the debts falling into this category represent more than 30,000 CARF trials, for a total value of more than R$ 720 million. At the federal revenue offices there are more than 170,000 processes, for a total of almost R$ 1 billion.
In the case of companies with debts exceeding 60 minimum wages, the discount would be up to 100% on the amount of interest and penalties, in the case of irrecoverable or difficult to recover amounts. However, the government will allow the use of tax losses and a negative calculation basis to pay off 52% to 70% of the debt.
With “encouragement to reduce litigation in CARF”, the government estimates that it will obtain R$ 35 billion in extraordinary revenues. There would also be a permanent gain of R$15 billion by reducing conflicts. The Treasury’s argument is that the greater integration between the Revenue Agency and the PGFN (Attorney General of the National Treasury) makes part of the extraordinary impact permanent.
Already the estimate of the collection folder with “extraordinary incentive for spontaneous reporting” for companies to regularize the information owed to the Revenue Agency without being penalized is 15 billion reais, with a permanent effect of 5 billion reais.
Use of PIS/Pasep
Another source of extra income will be the collection of 23 billion reais of assets currently deposited in the PIS/Pasep Fund, which have sat idle for decades without any complaints from their beneficiaries. The redemption of these resources by the government has already been authorized by Congress through the PEC approved at the end of 2022.
In terms of measures with permanent effect, the government has revised its revenue forecasts this year, amounting to R$36.4 billion. As shown at Sheetsince the transition, technicians had a diagnosis that revenue was understated in the Budget.
The Treasury still hopes to raise another R$30 billion this year with the so-called use of ICMS credits, a state tax. The provision is connected to the STF ruling which eliminated ICMS from the PIS/Cofins calculation basis in sales transactions carried out by companies.
The problem is that the ruling did not consider the acquisition of input by the companies, which continued to consider ICMS in the basis of calculating federal taxes in these operations because this was more advantageous, they have a greater tax credit to deduct subsequently.
In practice, according to the experts, the distortion allows taxpayers to use a tax that has not been paid as a credit. Therefore, the government wants to correct the problem through MPs, re-establishing tax collection.
Recharge on fuel and financial income
The Treasury also calculates an extra R$ 28.9 billion in funding with the reinstatement of federal taxes on gasoline and ethanol starting in March. At the beginning of the year, to avoid a spike in fuel prices, Lula decided to extend the incentive for diesel and cooking gas by 12 months, and by 60 days for petrol and ethanol.
The measure was met with resistance from the economics team, who wanted to recover a larger portion of the collection. On the other hand, the political wing continues to press for an extension of the tax benefit beyond 60 days, in view of a more prolonged impact on consumers’ pockets.
The package also provides for an impact of 4.4 billion reais with the cancellation of the PIS/Cofins exemption on the financial revenues of large companies, a measure adopted by the government of Jair Bolsonaro (PL) at the end of his mandate. Haddad accused the previous administration of “passing the cattle” on the tax side, with a series of measures that have taken revenue out of Lula’s coffer.
As regards expenses, the list includes two measures. The first is a “review of contracts and programmes”, estimated at R$25 billion.
Tebet said an ordinance establishes criteria for the review and possible renegotiation of contracts, as well as the reassessment of public policies in the federal government. The task, however, will be up to each of the folders, under the supervision of the economic team. “All ministries should consider the need to maintain procurement carried out in past administrations.”
The government will also ask, with a decree, for a detailed assessment of the outstanding balances, as the expenses inherited from previous years are called. “It’s a very important evaluation in terms of maintaining or not, except for the Ministry of Health, and also the massive changes of the National Congress and mandatory expenditures,” he said.
Another 25 billion reais would come from a lower implementation of the amounts authorized in the Budget: among technicians, for example, there is the perception that the government will not be able to implement all the amount envisaged for investments in the Budget.
The minister also announced the end of ex officio appeals for amounts below R$ 15 million – when the Treasury automatically appeals a defeat suffered in the dispute for a charge.
With the new provisions, if the taxpayer wins in the first instance, the dispute is definitively closed. This would lead to the extinction of approximately 6 billion reais of accusations, discussed in almost a thousand trials today at Carf.
The government will also give more power to the regional police headquarters to try more valuable conflicts, currently accumulated in court and which have been dragging on for years. They will be able to analyze processes involving up to a thousand minimum wages – today the cut is up to 60 floors. The expectation is to reduce the number of lawsuits by more than 70 percent by letting the court focus its work on the most valuable arguments.
Another provision announced aims at re-establishing the so-called “quality vote” in the Carf, a device which ensured that the Revenue Agency would continue to collect taxes in the event of a tie in the judgment – a common thing in disputes of significant amounts, since the court is made up of representatives of tax authorities and tax payers.
The tie-break in favor of the Revenue Agency ended in 2020, during the Bolsonaro government, imposing billionaire defeats on the Union in new trials. According to Haddad, the drop in the decisive vote generates an annual loss of 60 billion reais.
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