“ Medium-Term Fiscal Framework in Brazilian States ”
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“Medium-Term Fiscal Framework in Brazilian States”
Celia CarvalhoPresident of the Finance State
Managers’ Group
“Medium-Term Fiscal Framework and Performance Management in Central and
SubNational Governments”
Seoul - July/2013
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Contents
• Context
• State Governments current situation in Brazil
• Cooperation and coordination among States
• Negotiations underway with the Federal Government
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Brazil’s Features
Federal structure• Central Government• State Governments (27)
26 States Federal District
• Municipal Governments (5,570)
Population – 193.9 millionGDP * - US$ 2.48 trillion GINI Index (2012)* – 51.9 Bad distribution of family income5th largest country in the World
* Source: The World Bank
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Brazilian Federalism – 1988 Federal Constitution
Administrative and Fiscal autonomy of Subnational
governments (States, Federal District and municipalities)
Definition of:
Tax competencies (own-source revenues)
Responsibilities
Tax revenues distribution (Federal transfers)
Articulation and dialogue among long, medium and short-
term planning and the budget.
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State Governments’ current situation in Brazil Own-source Revenues are not enough to finance
Responsibilities; Tax basis erosion of the states’ main revenue source, the
Brazilian VAT, called ICMS; Heavy dependance of some states on federal transfers (more
than 50% of their revenues), such as the redistributive fund called FPE (States’ Participation Fund);
Excessive earmarking and a great amount of revenues already committed to mandatory expenditures;
Substantial increase in debt; Scarce resources to increase social and infrastructure
expenditures.
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Dependance of the States on FPE FPE
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Fiscal Adjustment (1997 onwards):
Fiscal Adjustment and Restructuring Program (PAF in Portuguese) signed by 25 Brazilian states (1997) for renegotiating the debts. New goals : Financial debt compared to “Real Net Income” (RLR: in Portuguese);
Primary results;
Own-source revenue collection;
Personnel expenditures in Real Net Income %.;
Privatization, permission and concession of public services;
Investments in Real Net Income %.
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Fiscal Adjustment: Adjustment of States and Municipalities fiscal
management to Fiscal Responsibility Law (2000): Elaboration of the Fiscal Targets Annex of the Annual Budget
Guidelines Law (with estimates):
Revenues and expenditures;
Nominal and Primary results;
Public debt;
Compliance with previous year´s fiscal targets;Fiscal risks Annex of the Annual Budget Guidelines Law.
3 fiscal years
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Fiscal adjustment: Adoption of strategic planning, result-oriented strategic
management, contractualization and public management quality assessment programs;
Use of methodology of fiscal scenarios construction; Monitoring and assessment of budget plans; Modernization of existing financial execution systems
(27 SIAFs); Increased transparency and accountability of public
accounts; Costs reduction; Articulation and Cooperation among councils and
States.
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Cooperation and coordination among StatesNew demands for State Governments
Changes in the federative pact and because CONFAZ deals only with harmonization of VAT
Creation of the FINANCE STATE MANAGERS’ GROUP - GEFIN in 2004
each of the 26 states and the Federal District appoint their own representatives.
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GEFIN – General objectives
The pursuit of fiscal balance in state public accounts through:
the study and improvement of legislation and the models of public
finance management;
the exchange of experiences, solutions and systems in the areas
of: fiscal management, program and financial management,
budget execution, bookkeeping and consolidation of public
finances, debt, quality of public spending, revenues,
expenditures, as well as legislation on public finances. "
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GEFIN – Especific objectives
Follows the policy of public finances and assesses their impacts
on local governments;
Stimulates the policy of mutual cooperation through the
interaction with International Organisms, Councils, Federal
Governments, aiming at the best solutions in Public Finances.
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Negotiations with Federal Government The State´s VAT (ICMS) - Fiscal competition, which
concentrates its tax basis on electric energy, fuel and
telecommunications; reform has been failed to pass in
Congress - federative fiscal dead end street.
State´s Public debt renegotiation - Federal Government
submitted debt restruturing proposal to Congress. Still in
debate.
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Subnational Debt Refinancing ( Laws 8727/93 and 9496/97)
1 2 3 4 5 6 7 8 9 10 11
181
218 240
270 279 293
311
344 338
369 385
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Negotiations with the Federal Government FPE – federal redistributive transfer to states aimed at
reducing bad income distribution; distribution criteria and
amounts are to be reviewed (deadline was June, 30th
2013).
Judiciary bonds – in discussion: criteria for payments,
compensations and correction index of debt stock were
judged unconstitutional by supreme federal court .
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Final Remarks
Consistent and reliable estimates of revenues and expenses and the preparation of medium-term fiscal scenarios to improve the quality of state budget plans;
Continuous monitoring and evaluation of budget instruments in order to adjust them to reality (revenues and expenditures);
Commitment to medium-term goals and promotion of sustainable growth and development of all Brazilian states.
Cooperation and coordination to solve federative problems.