Lula government studies accounting change that reduces calculation base for the Health floor – 10/03/2023 – Market

The Ministry of Finance is studying an accounting change that could, in practice, reduce the calculation basis of the constitutional health floor in the coming years, requiring the public administration to apply lower values ​​in this area.

The measure also has the potential to interfere with the limits on personnel expenses provided for in the LRF (Fiscal Responsibility Law), and the mandatory value of parliamentary amendments indicated by the National Congress.

The proposal consists of changing the criteria for calculating RCL (net current revenue), excluding some more volatile sources of revenue that are currently accounted for in this concept.

As the minimum investment of resources in Health, the maximum level of payroll expenditure and the volume of parliamentary amendments are estimated as a proportion of the RCL, the change would result in a reduction in these reference values.

The change is contained in a draft complementary bill to establish the new “Fiscal Rebalancing Regime for the States and the Federal District”. The full text was obtained by Sheet.

When contacted, the Ministry of Finance confirmed the content of the document, with the exception that it is “a preliminary draft under technical discussion”. The project still needs to be screened by “competent bodies” within the department, in addition to other areas of the government.

According to the draft, the government intends to exclude from the RCL revenue from concessions and permissions, dividends and participations, royalties and special participations, in addition to revenue obtained from special tax recovery programs, transactions and agreements aimed at promoting the regularization of credits. The changes would apply to the Union, states and municipalities.

The government’s justification is that the RCL is a reference for controlling ongoing expenses, and computing non-recurring or extraordinary revenues on its basis “can create significant distortions and put the fiscal sustainability of entities at risk.”

Removing them, in the Treasury’s view, is a “healthy measure”, as it prevents volatile revenues from serving as temporary support for the creation of an expense that will have to be permanently charged to budgets.

“By excluding extraordinary revenues from the calculation of the RCL, such as those resulting from concessions, permissions and tax agreements and transactions, greater rigor is being adopted in the measurement of net current revenue and preventing indicators of personnel expenses or debt on the RCL from being momentarily distorted due to revenues that do not have a recurring nature”, says the Treasury.

The government of Luiz Inácio Lula da Silva (PT) had already made a similar adaptation to the concept of net revenue when approving the new fiscal framework. As the actual expansion of the spending limit is proportional to the variation in revenue, the Treasury proposed excluding these same sources of revenue from the numbers that serve as the basis for calculating the framework.

The new indicator, called RLA (Adjusted Net Revenue), began to be released by the National Treasury at the end of September. From this, it is possible to identify that, in 2022, R$ 193.6 billion were deducted in revenues linked to sources that, now, the government also wants to remove from the RCL base.

The finding allows for some simulations: if the constitutional rule that requires application of 15% of the RCL in Health had already been resumed last year, the accounting change intended by the Treasury would mean a R$29 billion lower obligation for expenses in the area.

In parliamentary amendments, the rule provides 2% of the RCL for individual nominations of deputies and senators and 1% of the RCL for amendments from state benches. Based on 2022 data, the reductions would be R$1.9 billion and R$968 million, respectively.

Technicians interviewed privately by the report agree with the Treasury’s assessment that the accounting change at RCL goes in the right direction of preventing temporary or very volatile revenues from ending up generating space for the creation of permanent expenses.

In the last decade, for example, the boom in oil prices boosted revenue in states like Rio de Janeiro, which used the money to give generous salary increases to its civil servants until 2014. A few years later, when these revenues fell, the state faced severe difficulties in honoring its commitments.

For the federal government, the change is convenient because it helps maintain the sustainability of the new fiscal framework in the future.

The resumption of linking the constitutional Health and Education floors to the dynamics of revenue collection had already been a source of concern for the economic team, since the expansion of these expenses will occur more quickly than the pace of expansion of the spending limit — which will grow between 0.6% and 2.5% above inflation per year.

The Education floor, however, is calculated on net tax revenue, a concept that has not yet been achieved by the changes.

Despite the technical agreement, behind the scenes there is political concern, as changing the RCL brings a series of repercussions, some of them more sensitive.

The Lula government has already been criticized by its own allied base for asking for the removal of the Health and Education floors in the year 2023, with the aim of avoiding the need to reallocate up to R$20 billion from other areas to meet minimum resources. in public health actions and services.

The negative impact on the value of the amendments will also need to be discussed carefully with the National Congress, which has followed the opposite trend, of stamping an increasing amount of resources for its own nomination.

Furthermore, states and municipalities that currently comply with personnel spending rules may end up exceeding the 60% RCL limits for this type of expense, a situation that would impede the granting of new adjustments or the hiring of employees.

As verification is carried out individually between the Powers, even the Judiciary and Legislative Branches, which normally have smaller staff and have free space within their limits, may face some type of restriction.

In a note to Sheetthe Ministry of Finance states that, in its internal studies, it evaluates the possibility of establishing a “transition period” so that all entities can adapt to the limits taking into account the new RCL accounting criteria.

The ministry did not answer whether the intended change could facilitate compliance with the Health minimum in the coming years.

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UNDERSTAND THE CHANGE UNDER STUDY

What is RCL?

Net current revenue (RCL) is an accounting concept, defined in the LRF (Fiscal Responsibility Law), which serves as a reference for a series of public finance indicators. It is also the calculation basis for minimum health expenditures at the federal level and expenses with parliamentary amendments.

How is RCL calculated today?

Net current revenue is obtained from the sum of tax revenues, contributions, property, industrial, agricultural, services, current transfers and other current revenues, deducted:

1. constitutional or legal transfers from the Union to states and municipalities, or constitutional transfers from states to city halls

2. contributions of employers and workers to Social Security

3. contributions to PIS/Pasep

4. contributions towards the cost of civil servants’ pensions

5. revenues from financial compensation between pension schemes

What is the government’s proposal?

The Ministry of Finance defends excluding from the RCL revenues obtained by the Union, states and municipalities with:

1. concessions and permissions

2. dividends and shares

3. exploitation of natural resources (royalties and special participations)

4. special tax recovery programs, transactions and agreements designed to promote the regularization of credits

How big is the change?

The effect will depend on the size of the collection with these four items each year. In 2022, according to data from the National Treasury itself, R$193.6 billion would have been deducted.

What areas would be affected by the change?

The RCL is a reference or calculation basis for relevant indicators. See some examples:

• Minimum investment of resources in Health: 15% of RCL

• Parliamentary amendments: 2% of the RCL for individual amendments and 1% of the RCL for state benches

• Personnel spending limit: 50% of the RCL for the Union and 60% of the RCL for states and municipalities