Lula da Silva’s program threatens to destroy Brazil’s public accounts: IMF forecasts a brutal increase in deficit by 2023

President Lula da Silva’s fiscal plan proposes increasing spending without compensating for new resources.

Only one year of the government of the new President Lula da Silva threatens to undermine the fiscal effort of Jair Bolsonaro’s administration.

The International Monetary Fund (IMF) estimates that Brazil will deepen all fiscal imbalances by 2023, putting extreme pressure on inflation and public debt stock.

The IMF forecasts that the Brazilian federal government’s financial and fiscal deficit will soar to 7.5% of GDP in 2023, starting from a figure of no more than 5%.

Discounting the enormous weight of public debt interest on the budget, the primary surplus inherited from Bolsonaro would be wholly lost, and 2023 would end with a deficit of 0.82% of GDP.

The stock of gross public debt would abandon its downward path, increasing from 88.2% of GDP to 93.3% by 2027.

Likewise, the net public debt (adding the claims in favor of the State) would rise from 58.4% of GDP to 68.5% in 2027, a heavy indebtedness of 10 points of GDP.

THE FISCAL PROGRAM PRESENTED BY LULA DA SILVA

The project of Brazilian socialism consists of a brutal increase in public spending explained by three main items: social expenditures, government salaries, and public works.

The program, now renamed “Bolsa Família,” has been expanded, increasing the basic allowances from R$400 to R$600 for beneficiaries.

Along the same lines, it was decided to increase the minimum wage by 7concerningct the nominal value of December 2022, which implies an increase in costs on the public sector salary structure.

To carry it out, the PT Government achieved the extension of the expenditure ceiling foreseen for 2023 for R$145 billion, equivalent to US$28 billion.

This consolidated a coup de grâce against fiscal discipline, as the country’s main fiscal rule was lifted for the first time since 2The; the original program presented by Lula da Silva even intended to eliminate the spending ceiling for 4 years altogether and increase spending by R$198 billion by 2023 alone.

The Brazilian Congress limited some of the PT’s outlandish proposals.

But on the other hand, no fiscal or tax measures were announced to compensate for the expansion of public spending, quite contrary.

This course validates the Monetary Fund’s diagnosis for 2023.

President Lula da Silva announced that the Federal Fuel Tax exemption would remain in effect in 2023, which means a budgetary cost of R$52.9 billion for the State in this fiscal period.

Along the same lines, the basic standard deduction for Income Tax was increased from R$1,904 to R$5,000 by 2023 (above projected inflation).

All these measures put more pressure on the fiscal deficit.

With inforamtion from Derecha Diario