Mayors surpass states and Union in investments – 01/30/2024 – Market

After increasing the volume of public investments in 2023, municipalities are approaching this year’s electoral dispute registering greater contributions than those observed between states and the federal government.

According to data from the National Treasury updated this month, municipalities invested the equivalent of 1% of GDP (Gross Domestic Product) in the third quarter of 2023 — the most recent data available. Meanwhile, states allocated 0.8%; and the Union, 0.3%.

If the trend is consolidated at the end of the year, whose data has not yet been released, it will be the first time since the pandemic (when city halls received significant funds from the Union) with municipalities in the lead.

The Undersecretary of Strategic Planning for Fiscal Policy at the National Treasury, David Athayde, says that the increase in investments is driven by the improvement in cash. According to him, the evolution was caused by the recovery of activity in the post-Covid period, by extraordinary transfers from the Union at that time and by control over personnel expenses (due to the temporary impediment created in the pandemic against salary increases in civil servants).

“The investment was mainly focused on infrastructure, such as highways, public buildings and sanitation”, he states.

Due to a combination of factors, local administrations were able to save money that is now being used as municipal elections approach.

City hall revenues grew for other reasons. The lack of correction in the Income Tax table, for example, increased the number of workers who need to pay it. Part of this additional revenue goes to municipalities via participation funds, which redistribute part of federal revenue with states and municipalities.

“With more money in hand and without many strings attached, city halls, faced with the electoral cycle, began to spend”, assesses associate researcher at FGV Ibre and partner at BRCG Consultoria, Livio Ribeiro.

The CNM (National Confederation of Municipalities) agrees with the economists’ view and adds another factor: parliamentary amendments.

“The scenario of high revenue in 2021 and 2022 allowed municipalities to increase their savings. In 2023, the substantial increase in municipal public investment is related to the use of these savings and, to a lesser extent, with the receipt of federal resources ( including amendments)”, analyzed the entity in text.

Furthermore, a point in the electoral legislation may have stimulated investments in 2023. “For 2024, due to the municipal elections, there are a series of prohibitions for managers. For example, the creation of expenses that cannot be fully met by the end of the exercise”, he pointed out.

The political scientist at FGV (Fundação Getulio Vargas), Sergio Praça, points to the movement as beneficial for current mayors seeking re-election. With more money in hand, municipal authorities have more scope to deliver public policies in the fight for the vote.

“This type of spending helps the mayor more than the president doing the same thing. The municipal election is different from the others”, he says. “A mayor who has money to invest and complete works in an election year is much more immediately recognized by the population as the person responsible for the improvements”, he states.

The greater availability of funds for city halls could stimulate greater competition in this year’s elections, says Praça.

“He leaves [o cargo] more attractive. We will later see how many state and federal deputies will run for mayor. Being a federal deputy is a powerful position, but being mayor is even more so because you have a budget in your hand,” he says.