V. Budget Results

The 1994 budget results, the best in the last four years, demonstrate the effective contribution of the tax adjustment to the success of the Real Plan. There was a marked reduction in the need for public sector financing compared to prior years (Table 5). The federal government contributed the most to this decline, producing an operational surplus equivalent to 1.14% of GDP. Several factors contributed to the 1994 results, but especially the 7.7% real growth in receipts compared to that of 1993.

Table 5

Public Sector Financing Needs (as a percentage of GDP)

Category	1991	1992	1993	1994
1. OPERATIONAL BALANCE	0.20	2.84	1.25	0.09
Central Government	0.08	1.20	0.95	-1.14
States and Municipalities	-0.72	0.70	0.12	0.78
State Companies	0.83	0.93	0.19	0.45
2. PRIMARY BALANCE	-2.88	-0.67	-1.75	-3.81
Central Government	-l.05	-0.61	-0.55	-2.66
States and Municipalities	-1.47	-0.04	-0.59	-0.74
State Companies	-0.35	-0.02	-0.61	-0.41

Source: SPE/MF

 

Since the initiation of the Real Plan, the federal government has adopted several measures designed to constrain public expenditures and to improve tax collection. These efforts are indispensable in order to achieve a balanced budget. In addition to the measures mentioned earlier, the following are the principal measures taken to constrain public outlays:

• extension of the Emergency Social Fund as a means of giving the government more flexibility in allocating expenditures;

• establishment of limits for budgetary contributions to sectoral activities;

• the requirement that the Council of Coordination and Control of State Enterprises approve the rules for the distribution of profits and for the annual reports of state enterprises;

• the decision that existing contracts and bids in progress by the federal government be re-negotiated in order to adapt them to current market conditions;

• the freeze until November 30, 1995, on the hiring of any new federal government personnel;

•the suspension of the re-hiring of employees who had been dismissed during the Collor government; and

•the prohibition against state enterprises adopting measures which would increase the transfer of resources to closed pension funds.

On the revenue side, the following measures stand out:

• the increase in employer and employee contributions to the social security system in order to offset part of the increase in the minimum salary, effective May 1995;

•the increase from 0.1% to 8.0% of the excise tax (IPI) that affects lower-priced automobiles, thereby, raising the average rate from 24% to 28.7%;

•the change in the legislation on corporate income tax;

•the adjustment in the tax on dividends from investments by individuals residing overseas; and

•the removal of imports of petroleum and its derivatives from the special drawback regime.

As a consequence of these measures, the federal government had a primary budget surplus of R$6.2 billion during January-July 1995, or 16.9% greater than that of the same period in the previous year. These figures can be seen in the following table.

Table 6

Public Sector Financing Needs Primary Balance of the Federal Government
R$ million of April 1995, adjusted by IGP-DI

Category (A)	Until July 1994 (B)	Until July 1995 (C)	Variation (%) (C/B)
1 - Total Receipts	48,941	65,102	33.0
2 - State/Municipal Transfers	7,088	10,903	53.8
3 - Net Receipts	41,853	54,199	29.5
4 - Expenditures	36,547	47,997	31.3
4.1 - Personnel	15,245	19,353	26.9
4.2 - Welfare Benefits	12,333	13,114	6.3
4.3 - Other current and capital	8,969	15,530	73.1
5 - Primary Balance (*)	5,306	6,202	16.9

(*) Positive values equal surplus

 

Revenues were the major factor in the improvement of the budgetary performance this year. Through July 1995, they rose 33% relative to the same period of 1994. This increase stemmed essentially from the government's effort to augment collections and from the high level of economic activity. At the same time, expenditures also rose substantially (31.3%) as a result of more personnel and health expenditures.

The public-sector budget is still a major concern even though, with the stabilization measures, it has been in balance recently. The government's intention is to reach a budgetary equilibrium that eliminates the need for public sector borrowing, which was 1.4% of GDP in the first half of this year. Moreover, through the privatization of state companies and the improvement in receipts, the internal public debt will hopefully be reduced from the present 17% of GDP to 12% by 1998.