Author: Everardo Maciel

Source: ABC Polítiko - Brasília / DF - NEWS - 05/04/2010

Pre-Salt has been the most important productive fiction on the contemporary Brazilian agenda. Although the size of the reserves is not known for certain, if there will be technology, capital and economic viability to exploit them or what will be the best way to allocate resources from oil exports, there is a fratricidal dispute between the entities federations for the presumed gains.

 
Fiscal federalism has always been one of the weakest pillars of the Brazilian republican model. It only achieved some expression after the 1967-68 tax reform, which established tax powers and income discrimination more rationally within the Federation. This model, however, has, over time, suffered a continued degradation process.

 
In terms of income discrimination, federal transfers, to the IR and IPI account, grew from a modest percentage of 10% to, respectively, 47% and 57% of the total collection of those taxes, which explains the expansion compensatory payment of social contributions, as the loss of income from the Union was not accompanied by a reduction in its spending.

 
The criteria for the distribution of State Participation Funds (FPE) and Municipalities (FPM) have also been degraded. The FPE was divided according to the size of the population, the inverse of per capita income and the territorial area of ​​the federative entity. The FPM adopted the criteria of population and the inverse of per capita income for capital cities and that of population for other municipalities. Despite some improprieties of the criteria, especially with regard to their effective application, there is no failing to recognize that they kept a reasonable consistency.

 
After the 1988 Constitution, for a strange combination of reasons ranging from the extinction of the so-called Special Fund, with an exclusive destination for some regions, to the difficulties associated with the 1990 Census, a fixed coefficient model was chosen, product of bizarre negotiations between the Secretaries of Finance.

 
Since then, it can be said that the criteria that, in the light of constitutional principles, informed the distribution of resources, were abolished. Precisely for this reason, the STF, in a recent decision, considered the current legislation unconstitutional and set a deadline (December 31.12.2012, XNUMX) for Congress to issue new legislation, under penalty of suspending transfers to the account of those funds.

 
The degradation of the FPE and FPM criteria was accompanied by an important increase in federal voluntary transfers - with emphasis on those resulting from amendments by parliamentarians to the Budget. This practice, apart from producing recurring scandals and serving as a sordid currency for political bargains, is an additional factor that disturbs the imperfect Brazilian fiscal federalism.

 
To this picture, a new ingredient was added, as the intergovernmental transfers, originated from royalties and special participation in the exploration of oil, started to assume significant values ​​with the increase of the domestic production of oil.

 
Law No. 2.004 of 1953, which created Petrobrás, already introduced the concept of royalties to be paid to States, as compensation for possible damages caused and for the requirement to expand the infrastructure. Simply put, it linked this indemnity to a percentage (5%) of the value of the extracted oil.

 
Law No. 7.525, of 1986, extended royalties to the continental shelf, although the property belongs to the Federal Government. For this purpose, it used the concept of projection of territorial limits by means of orthogonal geodetic lines. Then, it extended the transfer to the municipalities included in the corresponding geoeconomic area. The development of these concepts derives exclusively from political options.

 
It is true that these distribution criteria are inconsistent. It is also true that the resources distributed are already incorporated into the expenditure dynamics of the beneficiary entities.

 
Why, then, do not turn this crisis into an opportunity to take more solid roots in Brazilian fiscal federalism? A roadmap to get out of the current impasse would be to maintain the current criteria for the distribution of royalties and special participations, until the year 2012, and to schedule, for the next legislature, the review of the interstate incidence of ICMS on oil outlets and the setting of criteria for federal compulsory and voluntary transfers, noting that no change could mean loss in the historical value of any transfer.
 

Everardo Maciel, former Federal Revenue Secretary