Framework: military wants to rid state of the Navy – 05/18/2023 – Market

Members of the Armed Forces are putting pressure on the National Congress to try to create exceptions in the new fiscal framework and free military expenses from reaching the spending limit.

One of the desired objectives is to exclude from the cap the contributions in Emgepron, a company created for the construction of Navy ships.

There are also demands to withdraw expenses from funds from the Naval, Air Force and Army funds – which, together, had R$ 13.95 billion at the end of 2022.

Representatives of the Navy met this Wednesday afternoon (17) with the rapporteur for the framework, deputy Cláudio Cajado (PP-BA), to address the issue. The meeting took place in the office of the PP leadership in the Chamber of Deputies, close to the Salão Verde —a common space through which parliamentarians, advisors, journalists and visitors circulate.

According to interlocutors interviewed by the Sheetmembers of the Naval Force asked the deputy to create an exception in the tax rule for any contributions to Emgepron.

After the publication of the article, the Navy confirmed to the report that it sought the rapporteur to ask for different treatment for expenses related to the Force. According to the note, the commander of the Navy himself, Admiral Marcos Sampaio Olsen, participated in the conversation accompanied by advisors, taking advantage of his visit to Congress to participate in a public hearing.

The corporation said that the meeting sought to address “issues of interest to the Force”. “Alternatives were suggested to the rapporteur that maintain the possibility of exceptionalization of funds linked to the Navy and possible future capitalization of non-dependent state companies, related to the strategic sector of Defense”, he said.

At the public hearing, promoted by the Chamber’s Committee on Foreign Relations and National Defense, the Navy commander even argued that 40% of the Naval Force’s equipment should be deactivated by 2028 and asked for “predictability in the allocation of budgetary resources for the maintenance of programs strategic”.

Sought after, the Army and Air Force did not respond until the publication of this text.

Today, any injections of Union resources into non-dependent state companies (which do not need federal resources to cover operating expenses, such as salaries and running costs) are outside the spending ceiling —a fiscal rule created during the Michel Temer (MDB) government and which will be replaced by the new framework.

In 2019, however, this loophole was used by the military to transfer BRL 7.6 billion to Emgepron, which used the money to pay expenses related to the construction of the vessels.

The TCU (Tribunal de Contas da União) criticized the maneuver, which was the subject of a warning in the context of the analysis of the accounts of the first year of the government of Jair Bolsonaro (PL).

For the cut of accounts, the contribution was used to circumvent the spending ceiling and fund investments that should be included in the Federal Budget — which, due to limited expenses, would not have enough space to meet the demands of the military.

Since the maneuver, the contribution to state-owned companies has become a point of concern for government technicians, control bodies and market economists.

When sending the framework proposal to Congress, the team of Minister Fernando Haddad (Finance) even discussed closing this loophole for extra spending, but ended up withdrawing from the idea. In an attempt to demonstrate some effort, the government predicted in the text that contributions in state-owned financial institutions (such as public banks) will remain within the limit.

The list of exceptions set up by the government in the rule, however, had been criticized by parliamentarians and by members of the market.

According to participants in the negotiations, it was precisely the Emgepron precedent that led technicians to suggest to the rapporteur the inclusion of all state-owned companies under the roof of the new fiscal framework. The change was accepted by Cajado in the opinion.

The change triggered an attempt by the Armed Forces to exclude the company from the scope of the rule, which would maintain the possibility of injecting resources into the company without risking bumping into the spending rules — as done in the past.

According to interlocutors, although the request related to Emgepron came specifically from the Navy, the other Forces have also been making requests to benefit their respective areas.

There is a demand to exclude resources from the Naval, Army and Air Force funds from the base of the ceiling.

The Naval Fund was created at the beginning of 1932 by then President Getúlio Vargas, supplied with some of the Navy’s own revenues and with the purpose of “renewal of the floating material of the Navy”. At the end of 2022, he had a balance sheet of BRL 3.25 billion.

The Aeronautical Fund, in turn, was established in 1945 with the objective of ensuring the “equipment of the Brazilian Air Force”. Among the sources of income are the sale of real estate and aircraft of the corporation. Its balance was BRL 8.83 billion at the end of 2022.

The Army Fund was created in 1965, under the military dictatorship, to help “equip the Army” and to pay for any social assistance programs “so that the Army can fully fulfill its missions”. He ended last year with a stock of R$ 1.87 billion.

List of exceptions to the framework spending limit, according to the rapporteur’s text:

1. Constitutional transfers to states and municipalities by way of tax distribution
2. Extraordinary credits, released in unpredictable and urgent cases (such as those resulting from war, internal commotion or public calamity)
3. Expenses funded with funds from donations or judicial or extrajudicial agreements signed due to disasters
4. Expenses of universities and federal institutions, and public companies of the Union providing services to federal university hospitals, when funded with own income, donations or agreements
5. Expenses incurred with funds arising from transfers from other entities of the Federation to the Union intended for the direct execution of works and engineering services
6. Expenses with precatories agreements to be paid with discount
7. Account matching operations with precatories
8. Non-recurring expenses of the Electoral Court with holding elections
9. Legal transfers to states and municipalities of resources obtained from forestry concessions