States and municipalities lose autonomy with tax decisions made by a central committee

The main concern of governors and mayors, the autonomy of states and municipalities was further impacted by the version of the tax reform approved by the Senate last Wednesday (09).

Parliamentarians, tax experts and governors increased the tone of criticism of the changes made by the rapporteur proposed in the House, senator Eduardo Braga (MDB-AM), in relation to the Management Committee, which will manage the Tax on Goods and Services (IBS) that unifies taxes of states and municipalities.

“The committee breaks the backbone of the federative pact. You have a federation when you have independent states. What is the independence of a state that has no power to make its own tax policy and is left without a council that centralizes everything?” asked senator Oriovisto Guimarães (Podemos-PR) to People’s Gazette.

The text of the proposal, initially approved by the Chamber of Deputies, provided for the establishment of the Federative Council to manage the IIBS. Criticisms of the Committee’s centralizing structure have always been numerous. The Council was classified by former Federal Revenue Secretary Everardo Maciel, in an interview with “Power360″, as a “federative contraption”, with the power to “inspect, collect and even create law”.

The reform rapporteur in the Senate replaced the Council with the Steering Committee. Braga also removed the possibility of a law initiative by the body and defined that the Committee’s representation will be made by members of the tax administration and state and municipal prosecutor’s offices. Furthermore, it included the possibility for the National Congress to summon the president of the Committee and request information, as already happens with State ministers.

The changes did not change the essence of the new body. In the understanding of federal deputy Luiz Philippe de Orleans e Bragança (PL-SP), the tax reform is creating “a central collection authority, not elected, but appointed, which will “establish sectoral collection policies for all of Brazil.” Each state , explains the parliamentarian, will bring their specific demands to be decided by a central entity.

“Why have a central committee? Since when has a centralized regime worked? Are the discussions in the states not valid? What technology is not working to collect their taxes from the states? Nobody answers these questions”, observes the deputy.

The loss of autonomy, say Orleans and Bragança, does not only affect the states and municipalities, but also the Legislature, which will submit the discussion of tax policies and the budget itself to the new body. “In practice, the autarchy will rival the powers of Parliament”, says the deputy.

Finance Secretaries also criticize centralization

Concern about the loss of autonomy was also expressed by the National Committee of State and DF Finance Secretaries (Comsefaz) in a note released on Thursday (10).

According to the secretaries, the approved proposal, which creates the dual Value Added Tax (VAT), imposes the federalization of taxes, with excessive links between the state IBS and the Contribution on Goods and Services (CBS), to be collected by the Union.

As federal taxes must come into force before state taxes, the note highlights, there will be gaps for centralization of revenues that would weaken “the fiscal sustainability of states and municipalities”.

There are also no defined limits to prevent the Union from advancing the ICMS tax base, the Tax on the Circulation of Goods and Services, (which will be included in the IBS) managed by the states and DF, which represents approximately 85% of the total collected.

“The Union already collects more than 2/3 of Brazilian taxes and is about to consolidate an almost total share of Brazilian tax revenues, leaving to states and municipalities only those of a patrimonial nature, with a low revenue flow”, says the note.

The state secretary of Finance of Espírito Santo, Benício Costa, criticized the mechanism adopted for appointing the president of the management committee, who will be responsible for distributing tax resources. The name will have to be approved by the Federal Senate, after a hearing, which further deepens the loss of autonomy of states and municipalities.

Reinforcement of Funds did not prevent criticism about the distribution of resources

To increase support for the proposal, Senator Eduardo Braga responded to the governors’ request and increased the Union’s transfers to the Regional Development Fund (FDR) from R$40 billion to R$60 billion.

FDR compensates for the end of the fiscal war between states and provides budgetary resources for regional development. Braga’s intention was to establish a “middle ground” between the governors’ requests between considering the state’s population, which favors more populous states, and using the criteria of the State Participation Fund (FPE), which serves the poorest states. .

According to the approved proposal, 70% of the amounts will be distributed based on the State Participation Fund (FPE) and 30% according to the population. The senator’s text foresees passing on, with inflation correction:
in 2029: R$8 billion;
in 2030: R$16 billion;
in 2031: R$24 billion;
in 2032: R$32 billion;
in 2033: R$40 billion;
in 2034: R$42 billion;
in 2035: R$44 billion;
in 2036: R$46 billion;
in 2037: R$48 billion;
in 2038: R$50 billion;
in 2039: R$52 billion;
in 2040: R$54 billion;
in 2041: R$56 billion;
in 2042: R$58 billion;
from 2043: R$60 billion per year.

Governors of the South and Southeast, however, state that Braga’s text increases inequalities in treatment in relation to the States of the North and Northeast. “The report increases the fiscal war and divides the States”, said the governor of Paraná, Carlos Massa Ratinho Júnior (PSD).

The statement was given together with the governor of Rio Grande do Sul, Eduardo Leite (PSDB), after a meeting with the Minister of Finance, Fernando Haddad on Wednesday, when the vote against the proposal was considered. Also participating in the meeting were Tarcísio de Freitas (SP); Claudio Castro (RJ); Jorginho Mello (SC); and Mateus Simões (vice-MG). Leite, who is president of the group, stated that the Chamber’s tax reform was more “palatable” to the states of the South and Southeast.

Estimate of CNN Based on the parameters of the report, Braga indicated that the Northeastern states would receive R$25 billion of the FDR’s R$60 billion. On the opposite side, the states of the Central-West would be awarded around R$4.22 billion.

The state that will receive the largest amount is Bahia, around R$4.95 billion. Next come São Paulo (R$4.43 billion), Pernambuco (R$3.67 billion), Ceará (R$3.53 billion) and Maranhão (R$3.40 billion).

The projection took into account, for the FPE, the coefficients for the year 2024, published by the Federal Audit Court (TCU), and, for the population, the Census of the Brazilian Institute of Geography and Statistics (IBGE). The method was validated in consultation with Murilo Viana, economist and specialist in public accounts.

Resources cannot be a bargain to end autonomy, says opposition

For opposition parliamentarians, the reinforcement of FDR’s resources, under any criteria, does not compensate for the loss of autonomy of federal entities. Oriovisto Guimarães criticizes the lack of attention to economic impacts.

“The funds don’t have funds, they don’t have resources. Where is the government going to get another 60 billion a year to compensate the states?” asks the senator, remembering the fiscal deficit. President Luiz Inácio Lula da Silva himself admitted that it won’t be enough to zero deficit, as foreseen in the framework next year”, said the senator.

The central point, in the congressman’s assessment, would be to benefit one state or another. “The states in the Northeast will benefit more. But if the project served the South better, where I’m from, I would have the same position. It’s not sustainable,” he says.

Deputy Luiz Phillipe de Orleans and Bragança reinforces that funds come precisely to correct distortions. “Whenever we talk about the fund, some accounts are not closing. The truth is that the governors do not understand the tax system and do not know how to predict the economic consequences of the measures. And who knows, they are quiet, pressured by the government’s revenue drive.”

The project still went back to the Chamber of Deputies for consideration before becoming law. In the opinion of jurist Ives Gandra Martins, governors will only feel the weight of the reform when the complementary bills are approved.

“Then you will be able to see the impact on your budgets. Until now, in addition to not paying attention to the loss of autonomy, no one has made calculations yet. Not the impacted sectors, not each of the 27 states and the Federal District, nor the 5569 municipalities”, evaluate.

We are surrounded, Gandra believes, by a great illusion that any system is better than what is there. But it could get much worse. “Some will win and others will lose, but the taxpayer is the one who will pay”, he warns.