The Role of the State in Brazil

Duties of the Brazilian state

• To promote individual and social rights• To promote social security• To induce sustainable development• To promote infrastructure

State and Development• Importance of debunking myths about the state.• State as a inducer of development.• Centrality of the state in the development of

technologies and innovations, with great productive impact (e.g.: aviation, nuclear energy, computers, internet, biotechnology)

• Specificity of Brazil: necessity of reconciling inducing and innovative action by the State with the distribution of income and the expansion of public services (health, education, social security, sanitation, housing, public safety, etc.)

Example:

Partnership for Productive Development (PDP) in health• Public / private cooperation for development, transfer and

absorption of technology, production, productive and technological training of the country in strategic products of the public healthcare system.

• Product development, transfer and absorption of technology, linked to the acquisition agreement signed with the Ministry of Health.

• 98 partnerships established.• 69 partners (50 private and 19 public).• 6 vaccines, 60 medicaments and 27 products.• R$ 8.3 billion in projects, with savings of $ 1.8 billion (2010-2014).

Example:

Development of the Military Transportation Aircraft KC-390• EMBRAER project developed from Operational Requirement of the

Brazilian Air Force.• Technology developed with the support of Finep and BNDES.• Total investment of R$ 12.1 billion, with R$ 4.9 billion for the

development of the aircraft and R$ 7.2 billion for the acquisition of 28 units for the Brazilian Air Force.

• Expectation of US$ 20.0 billion in exports, to up to 70 countries.• 60 units with firm purchase intent (Argentina, Chile, Colombia,

Portugal and the Czech Republic).• FAB holds rights to the project and will receive royalties for each

unit sold.• 12,000 direct and indirect jobs

Projected investments

R$ 198.4 bi

Roads

R$ 66.1 biRailways

R$ 86.4 biPorts

R$ 37.4 biAirports

R$ 8.5 bi

6

Logistics Investment Program 2 (PIL 2)

Additional challenge of coordinating expenditures in a context of fiscal restriction:

To preserve social conquests, improve the efficiency of the public policies and ensure investments.

Reconciling PrioritiesInduction of developmentReduction of inequalitiesExpansion and enhancement of quality of the services

Composition of the Expenditure of the

Federal Government

Pessoal e Encargos21,5%

Transferência de Renda às Famílias

49,4%

Capital7,6%

Outras Despesas Correntes

21,5%

Participação dos Grandes Grupos de Despesa Primária do Governo Federal em 2014

Source: SIAFI.

Participation of the Major Groups of Primary Expenditure of the Federal Government in 2014

Income Transfers to the Families

49.4%

Capital7.6%

Other Current Expenditures

21.5%

Personnel and labor costs

21.5%

MINISTÉRIO DO PLANEJAMENTO

Pessoal ativo, exceto educação e saúde

7,8%

Pessoal inativo, exceto educação e saúde

7,1%

Investimento, exceto educação e saúde

6,9%

Outras despesas* 11,4%

Saúde9,5%

Educação8,0%

Previdência38,0%

LOAS / RMV3,8%

Abono/Seguro Desemprego

5,1%

Bolsa Famíla2,5%

Gasto Social67%

Participação dos Gastos Sociais na Despesa Primária do Governo Federal em 2014

* Em outras despesas, estão gastos como os com a desoneração da folha, CDE, Lei Kandir, despesas de custeio (exceto as relacionadas a educação e saúde), transferências a DF e ex-territórios para pagamento de pessoal e Sentenças e Precatórios (exceto as relacionadas a educação e saúde)

Source: SIAFI.

Other expenditures*11.4%

Investment, except education and health

6.9%

Retired personnel, except education and health

7.1%

Active personnel, except education and health

7.8%

Social Expenditure

67%

Education8.0%

Health9.5%

“Bolsa Família”2.5%

* In other expenses, there are expenditures such as tax waivers over salaries, Energy Development Account (CDE), Kandir Law, operating expenses (excluding those related to education and health), transfers to the Federal District and former territories for payment of personnel and Sentences and Ordered Debt Securities (except those related to education and health)

Social Assistance Law

/ Lifetime Monthly Income

3.8%

Bonus / Unemployment

Insurance9.5%

Pension38.0%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Av. 3º Bim.

PLOA 2016

0

20

40

60

80

100

120

140

15.3 24.5

32.0 37.6

42.1 44.9 36.2

42.9 42.9 35.5

40.8 49.9

56.7

88.9

124.9

DEFICIT OF THE GENERAL SOCIAL PENSION REGIME (R$ billions)

Source: MPOG.

DEFICIT OF THE PUBLIC PENSION SYSTEM(R$ billions)

2006 2007 2008 2009 2010 2011 2012 2013 2014 Proj 2015

PLOA 2016

0

10

20

30

40

50

60

70

80

33.0 35.338.7

43.748.4

51.7 54.459.3

63.468.4 70.0

Source: MPOG.

2006 2007 2008 2009 2010 2011 2012 2013 20142

3

4

5

4.44.3 4.3

4.7

4.44.2

4.0 4.0 4.0

Expenditure with personnel and labor costs (% GDP)

Source: SIAFI.

MANDATORY EXPENDITURES(in % GDP)

13PL

12.0

12.5

13.0

13.5

14.0

14.5

15.0

15.5

14.9

Source: MPOG.

DISCRETIONARY SPENDING (in % GDP)

14

20022003

20042005

20062007

20082009

20102011

20122013

20142015

PLOA 2016

2016 Tria.

..2.5

3.0

3.5

4.0

4.5

5.0

4.7

4.0

Source: MPOG.

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 201650.0

100.0

150.0

200.0

250.0

300.0

76.6 78.6

109.8124.7

153.2

171.2

196.6

220.7

259.1

233.9250.4

Discretionary Spending(R$ billion)

Source: MPOG.

Discretionary Spending(R$ billions 2016 – adjusted by consumer price index IPCA)

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016100.0

150.0

200.0

250.0

300.0

350.0

135.2 134.0

177.0191.7

224.3234.9

256.0270.6

298.8

248.2 250.4

Source: MPOG.

COMPOSITION OF THE PRIMARY EXPENDITURE

17

Itens of the “Financing Necessity of the Central Government” Yearly Budget Law Project 2016

R$ bi % of GDP % of expenditure

Total Expenditure 1.210,6 19,4% 100,0%

Non impoundable total 1095,5 17,6% 90,5%

Despesas Obrigatórias 960,2 15,4% 79,3%

Pension 491,0 7,9% 40,6%

Personnel (except Constitutional Fund of the Federal District, FCDF) 252,6 4,0% 20,9%

Workers Support Fund (FAT) 55,0 0,9% 4,5%

Social Assistance Organic Law 46,1 0,7% 3,8%

Allowances 28,3 0,5% 2,3%

Tax waivers over salaries 18,5 0,3% 1,5%

Legislative and Judiciary 13,6 0,2% 1,1%

Constitutional Fund of the Federal District (FCDF) 12,0 0,2% 1,0%

Judicial Sentences 10,3 0,2% 0,9%

Other mandatory expenditures (including with control) 32,7 0,5% 2,7%

Non impoundable discretionary expenditures 135,3 2,2% 11,2%

Impoundable discretionary expenditures 115,1 1,8% 9,5%

Note: Total Discretionary Expenditures 250,4 4,0% 20,7%

LONG-TERM FISCAL PROGRAM

Main lines of actionPension: legal and infra-legal measures for reducing the deficit (forum begins this week)Personnel: multi-year agreement for salary adjustment, restructuring of cadres and reduction of civil service admissionsHealth: revaluation of the sources and uses of funds, focusing on the reduction of legal costs and increasing the quality of spendingAdministrative reform: reassessment of the structure of Ministries and commissioned positions, restriction of operational expenditures, better property management, restructuring of state departments and improvement of the governance of state-controlled companies

18

Thank you!