Opinions from the Ministry of Economy can remove RJ from the Tax Recovery Regime

Rio de Janeiro had two opinions against the approval of the new Tax Recovery Regime (RRF), an instrument for renegotiating the state’s debt with the Union.

Under the terms of the new legislation on the subject, although consultations are carried out with three bodies, a rejection is enough for the agreement not to be approved by the Ministry of Economy, which will officially manifest itself on the subject later this month.

The technical opinions to the contrary were delivered last week. They are from the National Treasury Attorney General’s Office (PGFN) and from the National Treasury Secretariat (STN). The previous agreement, started in 2017, was valid for three years.

However, it remains valid, by an injunction granted by the Federal Supreme Court (STF), while the state awaits the final decision on approval.

In the first three years of validity, the RRF prevented Rio de Janeiro from paying R$92 billion to the Union. According to the Ministry of Economy, the state’s debt with the federal government ended 2021 at R$141.5 billion. The amount corresponds to 140% of the state’s net current revenue.

The opinions delivered by the two federal agencies criticize the Fiscal Recovery Plan presented by the state treasury and understand that they increase Rio de Janeiro’s expenses, while they should reduce them.

The STN’s opinion emphasizes that the state foresees a drastic reduction in investment expenses only in the last year.

The document also reinforces that, in the other eight years, the plan “has high financing needs to defray financial expenses with interest and amortization that would be charged to it in a normal situation, even considering the full materialization of all adjustment measures and projections”. proposals”, reads an excerpt.

Elsewhere, the agency opposes a government position. “Contrary to what the state claims, there is no obligation to predict the achievement of fiscal balance only in the 9th year, if the state wishes to fully enjoy the program term. The forecast of early achievement could give the entity flexibility to react to unforeseen events, making its Plan more robust to adversity and credible in relation to the effective reorganization of the state’s finances”.

In addition to the two bodies, the Supervisory Board of the Fiscal Recovery Regime (CSRRF) participates in the process, which analyzes violations committed by the state in the current agreement.

The collegiate is formed by a representative from the state, one from the Federal Audit Court (TCU) and another from the Ministry of Economy. In this context, the verdict was favorable, with reservations, by two votes to one.

According to the Ministry of Economy, if there is adhesion to the RRF, payments from the state to the Union grow progressively over the nine years of the agreement.

The installments would total R$ 2.5 billion in the first year, equivalent to just over R$ 200 million per month, until reaching R$ 13.8 billion in the ninth year. A monthly payment of R$ 1.1 billion.

Rio de Janeiro joined the RRF after a serious financial crisis that caused the salaries of state employees to delay for months. In the period, financial foreclosures were also frequent in state accounts, to guarantee resources for payment of salaries and expenses with creditors.

The state had to adapt state legislation to be the first in the country to adhere to the RRF, which was in force for three years and would be renewable for another three.

The recent concession by the State Water and Sewerage Company (Cedae) was one of the counterparts demanded by the Union for granting the benefit to the state.

The legislation provides that the manifestation of the Ministry of Economy is bound, that is, expressly linked to the content of the technical opinions. The decision for approval is by President Jair Bolsonaro (PL). The process does not reach him in case of denial by the ministry.

However, without the adhesion of other units of the federation, the new legislation approved by the National Congress caused the agreement to change its profile. Thus, the state had to present a new proposal, instead of trying to extend the previous one.

The Secretary of State for Finance of Rio de Janeiro claimed to have received the opinions, but has not yet expressed itself because it is in the process of analyzing the documents. The body has five days to manifest itself and, eventually, present any adjustments it deems necessary to adapt to the requirements.

Wanted to comment on the opinions and a possible date for the institutional position on the approval of the agreement, the Ministry of Economy has not yet positioned itself.