Measures taken by the Bolsonaro government for tax relief, in the middle of an election year, have the potential to withdraw R$ 57.4 billion from the state and municipal funds between 2022 and 2023, according to calculations by the Ministry of Health. Estadão/Broadcast from data obtained exclusively from the National Committee of State Finance Secretaries (Comsefaz).
The measures would frustrate the continued ability of governors and mayors to finance public investment. For governors, the problem would be greater because it is an electoral year, and many are seeking re-election or the victory of their allies. One of the problems is that the government has been cutting taxes that have collection shared with states and municipalities.
A private “tax reform”, according to critics, taking advantage of the record collection that, according to President Jair Bolsonaro, will be R$ 300 billion more than expected.
With the reduction of the state tax on gasoline, diesel, alcohol and gas alone, there will be a frustration of the state’s revenue of R$ 30.9 billion if the measure is maintained by the governors until the end of 2022. This measure, approved by Congress, had as “godfather” the Bolsonaro government to reduce the impact of the high oil prices at the pump.
The technical area of Comsefaz estimates that the impact could be greater, as it has not yet calculated, for example, possible impacts of the ICMS freeze on fuels in 2023.
In relation to the reduction of the IPI rate, new calculations indicate an impact of R$ 15.5 billion in 2023 referring to the effects of the losses of the participation funds of the entities with the constitutional funds. The transfer to the funds is linked to a portion of the IPI. Cutting the IPI rate by 35% until December will generate a loss of R$ 11 billion.
In addition to the measures, there is still pressure in Congress to correct the Income Tax table and the Simples table, which could further frustrate the revenues of subnational entities. They are also taxes with shared collection.
In the assessment of Comsefaz’s institutional director, André Horta, the situation of the public finances of regional governments would be increasingly critical, and will be worsened by the measures taken by the federal government.
“Either the entities will collapse, or they will have to renounce essential services to the population due to lack of income”, said the director.
The federal government, on the other hand, argues that the governors’ cash is full with the extra transfers made during the covid-19 pandemic.
The estimated loss will make the body write, in the second semester, a note with the intention of alerting the next governors about losses in the first year of term. The alert also intends to point out possible fiscal measures to be taken to regain solidity or mitigate the impacts on public accounts.
Horta says that the fiscal situation of states and municipalities had been improving until the end of 2021 with the opening of trade and the economic recovery, after the fall suffered with the coronavirus pandemic. Revenue also gained momentum, mainly due to high inflation and its impact on ICMS.
Critics of this federal policy claim that the government makes this exemption without considering states and municipalities. In the assessment of economist Leonardo Ribeiro, the impact demonstrates the need to revive the idea of establishing the Fiscal Management Council in the country to promote coordinated and transparent fiscal management.
“The federal government has been betting on measures that compromise the balance of public accounts of subnational governments without evaluating impacts and consequences on the financing of local public policies”, said Ribeiro.