In 2013, Rio state expenditure was 86% higher than in 2000: a 5% growth above inflation, year after year, for 13 years. The increase in oil prices irrigated coffers with royalties and the advent of the pre-salt layer in 2006 created the feeling that there would be money for everything. The civil servants had a real increase of 40% between 2008 and 2015, they received benefits that the Union and other states had already abolished (annual, triennium, five-year period), any investment project was considered viable.
In 2012, there were already signs of imbalance in the social security system: revenue from royalties, sale of assets, judicial deposits and loans began to be used to plug the hole. When, in 2007, the Federal Government – in a mistaken decision – decided to loosen the debt ceilings of the states, Rio wasted no time and used all the additional space, contracting almost R$ 30 billion in additional debt, to continue financing growing expenses. , mandatory and rigid.
In 2014, the recession, the drop in oil prices and the crisis at Petrobras brought down revenue. The tide went out and the river was swimming naked. Primary expenditure had to be cut, so that the State could honor the debts due. Pressures for federal assistance began. In 2016, there was an emergency transfer of R$ 2.9 billion, in order to finance public security at the Olympics.
The crisis induced the Federal Government to create the RRF – Tax Recovery Regime. For three years (2017-20), the State would stop paying the debt installments with the Union, gaining liquidity to cover everyday expenses. In exchange, it would make a fiscal adjustment effort. Adjustment targets were unambitious. The suffocation subsided and primary expenditure returned to pre-crisis levels (2014-16).
The State Government did not use the revenues from the concession of Cedae (Companhia Estadual de Águas e Esgotos do Rio de Janeiro) to write off debts, as provided for in the RRF law, and allowed R$ 14.4 billion to accumulate in outstanding payments above the combined goal. It took advantage of a gap in the legislation and continued to give tax benefits in the context of the tax war.
The result is that the consolidated net debt grew between the beginning and the end of the RRF, from 234% to 281% of net current revenue (RCL). If it weren’t for the dribbles described above, the debt could be up to 25% lower. The payroll continued above the legal limit of 60% of the RCL. It fell only marginally from 72% to 67% of the RCL between the beginning and end of the plan.
In 2022, the State remains maladjusted and claims access to the new RRF. When proposing a new adjustment plan, its leaders argued that the first RRF would have forced an unprecedented and counterproductive fiscal adjustment, bringing down the economy and state revenue.
This is not supported by the data: the RRF provided cash relief and allowed spending to be maintained. The cuts took place before the bailout, due to lack of liquidity.
The State proposed a fiscal recovery strategy through the expansion of investments, to activate the economy and increase tax collection. Not even the numbers presented in their study support the thesis. An investment package of BRL 36 billion is presented that would generate additional revenues of BRL 7 billion: a net cost of BRL 29 billion, heavy for a state in a critical situation.
But these numbers do not matter, which have a figurative function. The “for real” fiscal plan is not related to the narrative that packs it. Strong growth in personnel expenses was proposed, which would rise from 53% to 59% of primary expenditure. To close the account, there is an abrupt cut in investments. Precisely the investments that, in the political discourse, would be the basis of an adjustment with economic growth.
Showing what it came to, even before having its plan approved, the State has already disrespected a basic prohibition of the RRF: it granted readjustment to civil servants, in a law approved just a week after its previous admission to the program. As I stated in a previous column, the plan should be completely redone, on serious grounds. Approving the current one, albeit with marginal adjustments, will be a signal for other states to present similar proposals. It will cost you.
I have over 8 years of experience in the news industry. I have worked for various news websites and have also written for a few news agencies. I mostly cover healthcare news, but I am also interested in other topics such as politics, business, and entertainment. In my free time, I enjoy writing fiction and spending time with my family and friends.
