Brazil’s central government achieves historic record primary surplus in June

Brazil’s latest economic figures are impressive. After announcing the creation of a record number of new jobs earlier today, the country is now coming up with a record surplus.

The privatization of Eletrobras, dividends from state-owned companies, and the settlement of high judicial claims improved public finances in June.

Last month, the central government – Ministry of Finance, Social Security, and the Central Bank – recorded a primary surplus of R$14.433 billion (US$2.775 billion). This is the highest surplus for the month since the historical series began.

The result was better than expected by financial institutions. According to the monthly Fiscal Prism survey published by the Ministry of Economy, market analysts expected a negative result of R$39.4 billion in June.

This was the third time that the central government recorded a primary surplus this year. The other months were January and April.

With the June result, the central government ended the year’s first half with a positive result of R$53.614 (US$10.2) billion. This is the third best result in the history of this period, after 2008 and 2011.

The primary result is the difference between revenues and expenditures, excluding interest payments on the national debt. Despite the accumulated surplus this year, the Budgetary Guidelines Law (LDO) foresees a primary deficit of R$170.5 billion this year.

REVENUE COLLECTION

The surplus in June came about because revenues increased while expenditures decreased. Last month, net revenues increased 72.2% in nominal terms compared to June last year.

After subtracting inflation through the National Wide Consumer Price Index (IPCA), growth reached 53.9%. During the same period, total expenditures decreased by 4.4% in nominal terms and by 14.4% after deducting inflation.

The increase in net revenues is explained by the collection of R$26.6 billion in concession premiums from Eletrobras and the increase of R$25.8 billion in dividend income from state-owned companies.

Dividends are the portion of profits that a company distributes to shareholders. In the case of state-owned enterprises, where the federal government is the largest shareholder, the government receives most of the dividends.

In tax payments, there was an inflation-related increase of R$10.4 billion in income tax withheld at source, as well as an increase in the collection of corporate income tax and social contributions on net profits by companies that pay based on monthly profit estimates.

This increase reflects, in large part, the higher profits of energy and oil companies in the first half of the year, which help to partially offset the tax reductions for industry and fuels.

Due to the rise in oil prices on the international market, royalty revenues increased by R$1.209 billion (+23.2%) above inflation last month compared to May 2021.

The international barrel price is currently around US$100 due to the war between Russia and Ukraine.