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Diverging Personnel Expenditure Concepts Contributed to States' Fiscal Crisis

Tax management

Study of the Department of Finance indicates the need to create management boards to standardize rules and make them perennial

The use of different concepts to interpret what is and is not personnel expense led the Audit Courts of several Brazilian states to approve, in 2018, the public accounts of administrations that, in 2019, can no longer honor their salary commitments to retired employees. , pensioners and suppliers.

According to a  study published on Monday (5/8) by the Special Secretariat of Finance of the Ministry of Economy, situations like these affected several federative entities. Among them, Rio Grande do Sul, Goiás, Mato Grosso and Rio Grande do Norte.

“These states are in a serious fiscal situation, being the first two in the process to join the Tax Recovery Regime,” says the Director of Treasury States and Municipalities, Bruno Funchal. He adds that Mato Grosso and Rio Grande do Norte are in a situation of financial calamity. The latter is overdue and still trying to pay the 13th of 2017 for state servers.

Transparency

Author of the study, Funchal highlights the need to increase transparency for good fiscal management. According to him, the apparent normality pointed out by the State Accounts Courts until 2018 was due to different concepts on personnel expenses, as pointed out in the Fiscal Management Reports (RGF).

“By the concept used by state courts, only seven states presented in 2017 mismatch of personnel expenses determined by the Fiscal Responsibility Law (LRF)” explains. "However, using the concept defined by the Fiscal Adjustment Program of the National Treasury Secretariat (PAF), there were actually 15 states that were out of line."

For Funchal, the simple observation of the facts this year 2019 shows which of the concepts corresponds to the reality of public accounts. He points out that the LRF provides alerts when certain personnel spending limits are reached as a proportion of Net Current Revenue. The maximum commitment limit for this expense is 60%.

“But some states already commit 70% or 80% to it. These divergent accounting concepts have impaired transparency, ”he says, citing as a more serious example of interpretation the deduction of Withholding Income Tax (IRRF) and the exclusion of inactive and pensioner expenses from the personnel expense calculation.

Changes

The study points out three important actions that need to be taken to ensure more transparency in state accounts. The first is to clarify questions about the calculation of personnel spending limits, so that there are no more differences between the federation entities.

The second is to make it feasible for all states to adopt, thus limiting the time limit for those who, with the implementation of the new rules, eventually become out of compliance. The third is to establish the Fiscal Management Council, so that the harmonization of concepts is perennial.

“The first two actions were addressed within the Fiscal Balance Program (PEF), sent to the National Congress. Regarding the creation of the Council, there is a bill in the Chamber of Deputies that needs to gain speed in the process, ”he said.