Brazil’s govt forecasts return to deficit in 2023 amid extended tax exemptions on fuels

BRASILIA (Reuters) -Brazil’s government will return to a primary deficit in 2023 after an expected surplus for this year, with the budget marked by extended tax reduction measures on fuels that would initially expire this year.

The budget proposal sent to Congress on Wednesday predicted a 2023 primary budget deficit of 63.7 billion reais ($12.25 billion), close to the 65.9 billion reais deficit officially set as the government’s fiscal target for next year.

If confirmed, spending by the central government will outstrip revenue by the highest amount since 2020, when the primary deficit reached 743.5 billion reais amid large amounts spent to fight the pandemic.

As Reuters reported last week, the 2023 budget bill kept tax reductions on fuels in line with President Jair Bolsonaro’s pledge that federal taxes would remain zeroed for gasoline, diesel, ethanol and cooking gas.

According to the bill, fuel exemptions will amount to 52.9 billion reais in 2023, also benefiting compressed natural gas (CNG) and aviation kerosene.

The budget proposal also set 14.2 billion reais aside to finance higher wages for public servants.

Bolsonaro, who is seeking reelection in October but currently trails former President Luiz Inacio Lula da Silva in opinion polls, also promised to keep cash handouts for low-income families at 600 reais next year, but the budget bill planned for payments of 400 reais a month.

The decrease was already expected because the government cannot simply increase the program, at an estimated cost of 52 billion reais, as that would exceed the constitutional spending cap, which limits the growth of public expenditures.

In a press conference, Special Treasury and Budget Secretary Esteves Colnago said the government would seek funding for this extra cost so that it does not increase the fiscal deficit.

“We will talk to Congress after the elections to find the sources for this expenditure,” he said.

Colnago estimated that next year’s primary balance should be better than predicted in the budget bill, adding that this year’s surplus should reach 0.2% to 0.3% of GDP.

($1 = 5.1981 reais)

(Reporting by Marcela Ayres; Editing by Mark Porter and Jonathan Oatis)


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