Dario Durigan reiterated that the government remains committed to fiscal responsibility: “There is no change in the changes we want for the country and in the adjustments that need to be made.”
In addition to the concern to obtain new sources of revenue, the federal government needs to put on the agenda the spending review to meet fiscal targets for this and the coming years. This assessment comes from the Deputy Secretary of the Ministry of Finance, Dario Durigan, the number 2 of the department led by Minister Fernando Haddad (PT).
Durigan also rejected the notion that the economic team changed its plans and loosened fiscal responsibility after announcing the decision to push back the target of zero primary deficit from 2024 to 2025. This measure raised concerns in the market.
Until then, according to the new fiscal framework approved by the Brazilian National Congress last year, the federal government had 2 main rules to follow in managing public accounts.
The first consists of respecting a spending limit, which grows annually at a rate of 70% of the evolution of revenues in the previous year, within a real growth range (i.e., discounted the official inflation) of 0.6% to 2.5%.
The second relates to the well-known primary result target, which now includes a tolerance band of 0.25 percentage point up or down in relation to GDP. As expenses tend to be constrained by the ceiling, the area subject to more discretion by political agents is precisely that of the primary result.
For 2024, the government is now working with a projected deficit of 0.25% of GDP. In 2025, the goal is to zero the deficit. For 2026, the objective should be a surplus of 0.25%. In 2027, a surplus of 0.5% and, in 2028, 1% of GDP.
“Our economic project remains. There is no change in the changes we want for the country and in the adjustments that need to be made,” said Durigan in an interview with the Folha de S.Paulo newspaper. “The first projections of the targets were made last year. Updating the scenarios for this year, the same challenges remain. But we must ensure that this challenge is met.”
Asked whether the Finance Department would engage more firmly in the spending review agenda, and not just in an attempt to increase revenue, the deputy secretary of the department acknowledged that “this agenda also needs to deepen.”
“I cannot fail to say that we are in favor of a spending review agenda. The desire of the economic team is for this to be done as quickly as possible. Now, there is a context and a political sensitivity to which we are also very attentive,” Durigan said.
“We will continue to dialogue with the political world to make this adjustment. If not in one year, then in two. The spending agenda has the full support of the Finance Department and can indeed have a greater role within the Finance Department.”
Haddad’s number 2 in the ministry also stated that “the revision of Brazilian public spending is necessary” and “we must do more than we have done regarding spending reviews.” “The Ministry of Finance is willing to embrace this project and strengthen this agenda with the Planning Department,” he said, without detailing the measures that would be adopted in this regard.
Interest Rate Cut
In the interview, Dario Durigan stated that there is no reason for the Monetary Policy Committee (Copom) of the Central Bank (BC) to slow down the pace of interest rate cuts, the Selic, currently at 10.75% per year after six consecutive cuts of 0.5 percentage point.
According to Durigan, “there is no reason and no change in expectations” regarding monetary policy. “Brazil’s fiscal agenda has never been as intense as it is now. It is in no way a relaxation of the fiscal agenda. It’s the opposite. It is to calibrate correctly what the final goal is and pursue it diligently, as we have been doing from the beginning. We will also surprise in 2024,” he guaranteed.
“Budget Bombs” in Congress
Another subject addressed in the interview was the agenda of the so-called “budget bombs” in the National Congress – proposals that could excessively increase spending and even jeopardize compliance with the new fiscal framework.
Recent disagreements between the President of the Chamber of Deputies, Arthur Lira (PP-AL), and the government’s political articulation have increased the risk that these “budget bombs” will advance in the Legislature.
“Congress has a multitude of political forces. In a moment like this, nearing the municipal elections and other political challenges, the importance of fiscal responsibility can be lost sight of by some,” Durigan said. “What we have been conveying to the leaders of Congress, especially to the two House Presidents, is the need to maintain the agreement on fiscal responsibility.”
According to the Finance Deputy Secretary, “the strategy is the same as last year, setting ambitious targets.” “If the environment is different, we have to adjust our objectives.
Not the direction of these objectives, but the dose,” he said. “The direction of the relationship with Congress is not being altered. There continues to be an important alliance on the economic agenda with Congress.”
Also, according to Dario Durigan, “the partnership of this project last year with Congress and with the Judiciary allowed us to move forward.”
“We have to dialogue, propose, repropose, insist, go to the other Powers when necessary to pursue a project,” he said. “We have to correct a lost decade so that we do not have, again, another lost decade. These first years of the Lula government are worth the next decade of development.”
The ministry’s executive secretary admitted that it will be necessary to submit to Congress, by August 31, new revenue measures to make the zero deficit target in 2025 viable. “Brazil is a country rich in inequality and in measures that do not show efficiency. It is necessary, with care, to evaluate what these corrections are,” he said.
Durigan also commented on the changes made in the Emergency Program for the Recovery of the Events Sector (Perse) – created in 2021, still under the government of Jair Bolsonaro (PL), with the aim of helping the two sectors, severely affected by the economic effects of the Covid-19 pandemic.
After a failed attempt by the government to revoke the program, the bill (PL 1026/2024) filed by deputies José Guimarães (PT-CE) and Odair Cunha (PT-MG) reduced from 44 to 12 the segments defined by the National Classification of Economic Activities (CNAE) Codes that will have reduced rates of PIS/Pasep, Cofins, CSLL, and IRPJ.
The text replaced the exemption for 60 months (counted from May 2021, as established by the original version of the program) with a new taxation rule for the remaining 12 sectors, with a gradual return to the original collection.
In the cases of the contribution to the Social Integration Program and the Public Servant Heritage Formation Program (PIS/Pasep), the Contribution to Social Security Financing (Cofins), and the Social Contribution on Net Income (CSLL), the bill provides for a reduction in the rate from 45% for the taxable events from April to December 2024; 40% for 2025 and 25% for 2026.
Regarding the Corporate Income Tax (IRPJ), the text provides for a 100% discount from January 1 to December 31, 2024; 40% for 2025; 25% for 2026. Another restriction introduced by the new bill was the prohibition of granting the tax benefit to companies taxed on actual profit (with an annual turnover above R$78 million) or on an arbitrary profit.
“The idea is to create more control mechanisms for the beneficiaries, to have a more streamlined program from a fiscal point of view and to achieve the results that Congress leaders expect for the sector,” said Durigan.
“It is better to close a design so that we do not lose control and limit the waiver of the program within a predetermined amount. The Finance Department wants it to be as minimal as possible, with a weaning off in the next two years so that the sector can adapt.”
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