Brazil halves 2023 primary deficit estimate due to higher tax revenue

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BRASILIA — Brazil’s government forecast on Wednesday that this year’s primary deficit will be significantly below the official target, helped by a jump in expected tax revenue.

The Finance and Planning Ministries projected a primary budget deficit of 107.6 billion reais ($20.6 billion) for the central government this year, equal to 1.0% of GDP, according to their first 2023 bi-monthly revenue and expenditure report.

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The forecast is significantly below the target primary deficit of 228.1 billion reais set by the annual budget law for the central government, which includes Brazil’s Treasury, central bank, and Social Security.

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It also meets the expectation highlighted by Finance Minister Fernando Haddad to close the year with a deficit equal to or below 1% of GDP, unveiled after he presented in January a plan of spending cuts and revenue-raising measures, including the resumption of fuel taxes that he convinced new leftist President Luiz Inacio Lula da Silva to embrace.

Later on Wednesday, Treasury Secretary Rogerio Ceron said at a news conference that a primary budget deficit below 100 billion reais in 2023 is possible, and that the government will enter 2024 seeking for fiscal balance.

The improvement was driven by an increase of 110 billion reais in estimated net revenues for this year, primarily due to the expectation of higher tax collection.

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Regarding expenses, the government reduced by 10.6 billion reais the expenses calculated in the budget law.

This year’s public accounts are expected to reverse the central government’s primary surplus recorded in 2022, the first in nine years, with the deficit deepened by a massive spending package that Lula got Congress to approve.

The package breaches the constitutional spending cap to increase social expenses and meet campaign promises.

The government has already committed to presenting a new fiscal anchor to signal fiscal sustainability, but Lula has postponed the announcement of the much-awaited rule to April. ($1 = 5.2186 reais) (Reporting by Marcela Ayres; Editing by Leslie Adler, David Gregorio and Diane Craft)