Opinion – Marcos Mendes: Fiscal recovery plan for the State of Rio de Janeiro is not serious

Brazilian states have faced a chronic fiscal imbalance since the 1980s. There are several incentives for low fiscal responsibility: Congress and the STF are always ready to grant extra money or a debt suspension. There are also legal rigidities that make it difficult for the governor who wants to keep the accounts balanced: revenue linkages, mandatory expenditures and restrictions on personnel management.

Despite the hostile environment for fiscal balance, several states are making a continuous effort to adjust.

In 1990, Orestes Quércia broke the State of São Paulo to elect his successor. Later administrations repaired the damage. Alagoas has recovered from the crisis caused by a debt contracted in the 1990s, based on false precatories.

Espírito Santo has a history of overcoming: it managed to reverse the control of organized crime over public institutions.

Ceará shows professionalism throughout several administrations.

Goiás and Rio Grande do Sul approved, in the midst of the pandemic, pension and administrative reforms, privatized, cut tax privileges.

Four states (MT, PB, RO and RR) have recently achieved grade A in the National Treasury’s ability to pay rating.

It is true that all states have thrown a significant part of the adjustment on the backs of federal taxpayers. But many did their part.

And Rio de Janeiro? Although blessed by high oil revenues, which if well managed could guarantee a comfortable fiscal situation, the Government of the State of Rio is experiencing a fiscal crisis that seems to have no end. And it insists on being supported by the rest of the country.

In 2017, the federal government created the Tax Recovery Regime, to assist states in a very serious situation. Rio was the only one served by this aid, which allowed for the suspension of debt payments with the Union and new loans above legal limits. It should have complied with an adjustment plan with privatization goals, reduction of tax benefits, payroll control.

The state has failed to meet several targets. It continued to grant tax benefits and salary increases. It took a toll on the Union by not using the proceeds from the sale of Cedae to honor unpaid debt, as provided for in the plan. To keep legislative and judicial personnel expenses above the threshold, it passed a state law that contravened federal law.

In 2021, the state has already readjusted civil servants. It did not approve pension reform, unlike 17 states that have already done so.

Congress approved changes to the Recovery Regime and authorized the re-entry of Rio, which needs to comply with a new adjustment plan. The plan presented by the state does not stand still. It proposes to increase spending (preferably with taxpayers’ money from the rest of the country) to stimulate the growth of the local economy and, with that, generate more revenue, which would lead to fiscal adjustment on the revenue side. It’s the magic formula of the perpetual motion.

According to the plan, from 2022 to 2029 the bills only get worse. Projected primary expenditure grows 31% and revenue only grows 18%. How is it possible to make a structural adjustment with this fiscal deterioration? The trick is that in 2030, the final year of the plan, revenue would jump 11% and expenditure would drop 7%. And to close the account, they still need to hang R$ 5 billion in “payables”. Push yourself an unlikely adjustment to 2030.

Throughout all the years of the plan, there would be salary readjustments. There are no tax benefits cuts. They estimate to raise almost R$ 20 billion with active debt collection, more than double the recent history. Another R$22.4 billion would come from greater inspection by the National Petroleum Agency on royalties to be paid to the State: a measure beyond the control of the local government.

The strategy seems to be to come up with a plan to be rejected. There, they run to the STF asking for a new injunction to suspend the payment of the debt, on the grounds that the Treasury’s demands are draconian and will paralyze public services. The STF has already shown itself to be receptive to this hoax on several occasions.

As the carioca Bussunda used to say, “be serious!”.