An unusual fiscal situation in 2020
There is an actual risk of an increase of the central government's primary budget deficit this year and, at the same time, of a reduction of the nominal deficit, which considers spending on the public debt's interest.
This unusual situation may come in part because the primary result of 2019 was below R$70 billion, well below the target, according to estimate of special Finance Secretary Waldery Rodrigues. Last year's fiscal data will be released late this month.
In 2019, the primary-deficit target for the central government (Treasury, Social Security and Central Bank) was R$139 billion, but a record volume of atypical, non-recurring revenues, mainly from oil auctions, sharply reduced the gap.
Another factor that contributed to the substantial improvement was the so-called "pooling" of funds, when the Treasury clears the funds but the public body is unable to spend them. The pooling was increased by the fact that the government only reversed budget cuts in the last months of 2019, leaving little time for the money to be spent.
For this year, the central government's primary-deficit target is R$124.1 billion, but the effective result will certainly be smaller. Fiscal targets set in the Budgetary Guidelines Law (LDO) currently have no correspondence to reality. They are set so that the government does not to run the risk of not complying with them. This practice was established after the creation of the federal spending cap.
The size of this year's primary deficit will depend on tax receipts and atypical revenues. Tax receipts are related to the economy's growth, to inflation, to the increase of total wages, to the volume of imports, among other economic parameters.
Last week, the government altered all these parameters, and consequently the revenue forecast. The government increased its projection of economic growth to 2.4% from 2.32%. The inflation estimate rose to 3.62% from 3.53%. The growth of total wages, which directly affects social-security revenue, went to 7.16% from 6.26%.
This way, the new forecast of tax receipts that the government will announce in the coming days will be higher than the one in this year's budget. Since the federal spending is submitted to the cap, any revenue increase will result in better primary result.
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