Fiscal Risk 2023: what will happen?

Fiscal risk are two words that have come together and do not leave the news, especially those on the economy. But what does that mean? And why is everyone afraid of it? The term is used to describe the risk of an economy or government failing to honor its debts and financial commitments. This can be caused by a number of factors, budget imbalances, rising public debt and political uncertainty, for example.

To better understand how this can affect everything, including your pocket, let’s talk about the fiscal risk issues in 2023. Already having doubts? Don’t forget that you can count on one of our investment advisors, it’s a great way to protect your money from market volatility.

What we will see in this article:

How does this happen?

The fiscal risk happens when the income is not enough to cover your expenses, causing an intense financial crisis when not managed correctly. Therefore, it works as a kind of indicator in which a country having a high fiscal risk means that it may not be the safest environment for new investments.

Much of this fear now comes from the increase in the Spending Ceiling, with proposals ranging from R$70 billion to more than R$200 billion. It is worth remembering that the law on this was created by the Temer government and circumvented a few times, depending on the needs faced.

Discussed since 2023, the proposal guarantees extra money for the payment of Bolsa Família of BRL 600 throughout the year, for social investments (such as the Popular Pharmacy program and the school lunch program) and investments in infrastructure, mainly in the areas of transport and popular housing.

The Budget can be adapted to the R$ 169 billion increase in expenses brought about by Constitutional Amendment 126 (resulting from the Transition PEC). This means that the expected deficit for 2023 is BRL 231.5 billion.

What are the fiscal risk issues?

One of the main indicators of fiscal risk is the budget deficit, which is when there is a difference between government revenues and expenditures. Therefore, when the deficit is high, it means that the government is spending more than it collects, which can trigger a growing public debt. It is at this time that this can negatively affect the confidence of investors and other creditors, increasing the risk of default.

Another factor that can affect fiscal risk is political uncertainty, something we experience a lot when there is a change of government in Brazil. When there is uncertainty about a government’s future economic policies, this can negatively affect the confidence of those willing to invest in a country, increasing the risk of default.

It is also important to note that some economic policies can have a positive impact on fiscal risk, while others can have a negative impact, so all is not lost. For example, if the new government announces measures to reduce the budget deficit and control the public debt, it could be a good thing.

Now, on the other hand, if the new government announces measures that significantly increase the budget deficit, such as increased public spending, this could have a negative impact on fiscal risk.

This means – in short – that fiscal risk can have a significant impact on a country’s economy, negatively affecting investor confidence, as well as the government’s ability to honor its debts and financial commitments.

So, keep an eye on what is happening, to monitor fiscal risk and economic policies, in order to assess the potential impact on financial markets and the economy.

Main tax risks

Of course, with an increasingly technological world, the Federal Revenue has also evolved and is now more easily able to inspect, control and collect information and business irregularities more effectively. Check which ones areThe main fiscal risks:

non-compliance with standards: it is an obligation to strictly comply with the legislation and maintain the accounting organization of your establishment. For example, complying with the payments, within the established periods, of federal, state and municipal taxes, which are charged by Organs competent bodies.
Tax evasion: it is one of the most serious tax crimes. As much as these faults are not always intentional, they occur due to inconsistencies. For example, alteration of books and issuance of adulterated tax documents, as well as concealment of false information or installments.
Incorrect business framework: the choice of tax regime that will define the correct way to pay mandatory taxes. So, if it is framed incorrectly, it runs the risk of being improperly charged and having to disburse a larger amount than necessary.

How to avoid tax risk?

Well they say that every problem has a solution. There are some ways to avoid tax risks, such as preparing tax planning to help forecast and monitor finances and expenses.To eliminate inconsistencies, standardizing processes is a good choice.

Another possibility is that you can count on a service specialized in digital accounting that will give much more reliability to the information and reduce the risk of irregularities. When it comes to the government, there are professionals who are up to date on tax legislation, so that regularization is avoided.

And what will happen in 2023?

Finally, going further into the subject of the impacts of fiscal risk on projections for 2023, there may be significant changes both in the Selic rate and in the exchange rate. This is because these are the variables most affected in the short term, by the market or by the effect of fiscal measures on asset prices.

This means that the increase in country risk would lead the exchange rate to higher levels. Following the logic, depending on how much it affects inflation, it affects the interest rate as well. As a result, there may be significant changes in market estimates.

Another point that must be taken into account is that much of this began with the question of increasing the Spending Ceiling, among the possible consequences, several specialists precisely, greater inflationary pressure, increased country risk and greater exchange rate depreciation.