CFP warns of risk of tax revenue exceeding budget again

The Council for Public Finance (CFP) warns that tax revenues and contributions are likely to be above budget again in 2024, although budget risks also involve not implementing some measures expected in the country’s 2024 budget proposal (OE2024), especially if The international situation worsened.

In its evaluation report of the OE2024 proposal, the foundation led by Nazaré da Costa Cabral agrees with the calculations of the overall scenario presented by the government, recalling the scenario of fixed policies presented in September. The CFP explains that the positive budget balance of 0.8% of GDP this year and 0.2% next year is mainly due to the favorable economic situation, given the expected structural balance of 0%.

“Discounting the effect of the economic cycle and the effect of measures for one time“The OE2024 proposal aims for the structural balance to reach a position around structural equilibrium, respectively 0.0% of potential GDP in 2023 and -0.1% of potential GDP in 2024,” the document states. This result “is consistent with the medium-term goal, which is necessary to ensure a margin of safety capable of responding to normal cyclical fluctuations, without being exposed to an excessive deficit, as well as enhancing the path of reducing the public debt ratio.”

On the public debt side, the Monetary Policy Program highlights that the planned reduction “is mainly determined by the positive contribution of the primary balance,” amounting to -2.5 percentage points of GDP, “which for the first time since 2019 is of higher significance.” of dynamic effect,” which represents -2.1 percentage points of GDP.

The report adds, “These positive contributions to reducing the public debt ratio offset the negative impact of the interest rate (2.3 percentage points) and the deficit and debt adjustment (0.5 percentage points of GDP).”

However, the main risks affect state revenues. On the one hand, a sudden slowdown in the global economy – and thus the national economy – will lead to the need for new support measures, which conflicts with the cancellation of many policies aimed at supporting household income and reducing costs. For companies.

Conversely, there is “the possibility that tax revenues and contributions will be higher than the Ministry of Finance expects, if the performance of effective social contributions is in line with expected wage growth.”

On the public spending side, contingencies linked to some state-supported companies remain a clear risk for OE2024, but investment also remains a focus of the CFP. Despite the expected acceleration in gross fixed capital formation, the dependence of this component on European funds and the delay associated with its implementation create risks for the development of the economy in the coming years, as the institution believes.