Probable Union losses with court decisions exceed R$ 1 trillion for the 1st time

The National Treasury sees it as likely to lose more than R$1 trillion as a result of unfavorable lawsuits. It is the first time that the amount, 30% higher than last year, has reached this level.

The information is in the BGU (Balanço Geral da União), published annually, and represents the hypothetical situation in which all taxpayers under the same legal situation would benefit from probable decisions unfavorable to the Treasury, regardless of whether or not they have entered court.

The numbers are provided to the Treasury by both the PGFN (National Treasury Attorney General’s Office) and the AGU (Union Attorney General’s Office).

The rules establish that lawsuits with decisions unfavorable to the Federal Government that have already become final, but continue to impose the need for provisions, must also have an accounting record and be subject to a provision.

Within the scope of the PGFN, the biggest losses are seen in the exclusion of ICMS from the PIS/Cofins calculation base – which has already brought billions in losses to the Union and reached the end of the year with a need for provision calculated at R$ 533 billion.

In AGU’s accounts, the biggest loss is in processes linked to Fundef (Fund for the Maintenance and Development of Elementary Education and for the Valorization of Teaching). States have been able to win in court cases in which they argue that they received less from the fund than they were due.

The defeats of the Union and the consequent obligation to pay more to the states because of Fundef led to a mega operation to change the spending cap rule through a PEC (proposed amendment to the Constitution) last year. In addition to these amounts, the government wanted to include a payment of R$ 400 to families from Auxílio Brasil (a substitute for Bolsa Família, which had an average payment of R$ 190), which did not fit within the constitutional limit.

Another defeat seen as probable is due to a lawsuit in the STF (Supreme Federal Court) over the alleged failure of the government to implement a minimum income program in Brazil for the entire population living in poverty and extreme poverty.

The law establishing the minimum income was created in 2004, still during the Lula government — but, in the view of the DPU (Public Defender of the Union), it was never properly regulated.

Auxílio Brasil, created last year, expanded the number of families on Bolsa Família – but it provides for a device that authorizes the government to maintain a waiting list and not serve the entire poor population if there are no budget resources.

In total, the Union’s net worth was negative at the end of last year at R$ 5.1 trillion. The value is 15% higher than a year earlier.

The Union’s net worth represents the difference between the country’s assets and rights (such as cash on hand, income receivable, state-owned shares and real estate) minus the bills it needs to pay (such as debts, pensions and liabilities from court decisions).

Equity becomes negative when there are more obligations than assets and rights (when it is also called unsecured liabilities). This occurred for the first time in 2015, after the National Treasury began its adherence to international accounting standards, and the situation has worsened since then.

Several countries monitored by the Treasury have negative net worth, but the Brazilian case stands out. This is because, in proportion to GDP (Gross Domestic Product), the result is considered very high.

Also contributing to the growth in recent years was the more than BRL 520 billion in expenses aimed at combating the Covid-19 pandemic and its social and economic effects.

The value led to a deficit in public accounts that increased the need for indebtedness — and, therefore, generated more financial obligations to be paid by the Union over the years.