Source: O Estado de S. Paulo, 6/6/2011

INTERVIEW

Andrea Calabi, São Paulo State Finance Secretary

The Secretary of Finance of the State of São Paulo, Andrea Calabi, celebrated the decision of the Supreme Federal Court (SFT), which condemned laws that grant tax benefits in six states and the Federal District. He says the decision is a step towards ending the fiscal war.

Calabi is in favor of the federal government's proposal to promote a “sliced” tax reform, as long as the slices are substantial. The secretary defends the renegotiation of the debt of the States, even if it means changes in the Fiscal Responsibility Law, a political banner of the PSDB, party of the governor Geraldo Alckmin. Following are excerpts from the interview.

On Wednesday, the Supreme Court considered unconstitutional state laws that grant tax benefits to attract companies, including a São Paulo program. How did you react to that?

With joy and joy. I'm happy. I think it's an important decision about the fiscal war. There were several actions of unconstitutionality in the Supreme Federal Court, which had not been manifested. We are celebrating yesterday's decision, especially if the Supreme Court starts to decide the Adins (Unconstitutionality Actions) of the fiscal war between the states. This restores the rule of law and contributes to the solution of a problem that affects the economy, legal security and squanders public resources. In the case of São Paulo, the condemned law refers to a benefit given in 2007 to milk producers, but which had already been challenged in court by supermarkets.

But will the Supreme Court's decision have an effect in practice? States often reissue tax benefit laws with minor changes and the problem remains…

We, from São Paulo, do not play with the Supreme Court's decisions. We do. What has happened so far is that when states knew that the law was about to be judged, they went ahead and changed the wording. In this way, the action lost its object and there was no more judgment. This time, it was different. The spirit of a decision already taken by the Supreme Court cannot be circumvented.

So, the STF decision could be the end of the fiscal war?

Yes. It is a very important decision.

Is a solution via the Judiciary rather than a broad discussion of tax reform in Congress healthy?

The Legislative takes and does not. And it is not even the fault of the federal legislature. It is the states themselves that are unable to reach an agreement. Then the legal order comes and imposes an agreement.

In the Senate, a proposal is being made to end tax incentives for imports, reducing the ICMS tax on imports to zero. What is the position of São Paulo?

It is favorable. Today we have a strong appreciation of the real that stimulates imports and discourages exports, expressive Asian competition with prices unthinkable until another day, and a fiscal war that gives subsidies to imports. The three factors contribute to deindustrialization. It is in this sense that the government promoted this draft resolution in the Senate. São Paulo's proposal is not to zero the interstate ICMS on imports, but to reduce it to 4%. In this way, it maintains some gain for the importing State and prevents fraud from occurring.

This discussion is evolving towards a broader reform of the ICMS. Should we focus on the import fiscal war or is it necessary to broaden the debate?

When trying to discuss a small part, the discussion immediately expands to all interstate commerce and other discussions are brought to the table. States are beginning to wonder who wins and who loses. If we make a reform to collect ICMS at the destination, São Paulo would lose a lot, because it is a net exporter of goods. I am not against charging at the destination, because it is beneficial from the point of view of the fiscal war, but the impact is unbearable for the State of São Paulo.

How big is the loss for São Paulo?

If the ICMS tax rate drops to 4%, it is around R $ 5 billion per year. It is a quarter of what São Paulo intends to invest per year. So there has to be some compensation. All states will do similar accounts. There are some possible trade-offs. An example is the Kandir Law, which exempts exports, but determines a refund from the federal government to the States. Another possibility is to change the participation fund of States and municipalities. Political sharing took place, in which the South and Southeast receive 15% of the total and São Paulo, 1%. The Supreme Court declared the law unconstitutional and the need to reform it by the end of next year. Our proposal is that the constitution should be followed and a sharing index directly proportional to the population of the States and inversely proportional to income.
If that were done, what would be the new participation of São Paulo in the fund?
It would give something between 4% to 5% of the resources of the participation fund, which allocates the resources of the IPI, the IR (Income Tax) and other federal taxes. We are talking about R $ 1 billion per percentage point. Therefore, it would be an extra revenue for São Paulo of R $ 4 billion.

States are also including in this discussion the renegotiation of state debt. Are you favorable?

It is another form of compensation. Today we have states and city halls with their debt renegotiated with the Union paying interest indexed to the IGP (General Price Index) plus 9%. The São Paulo debt is renegotiated paying IGP plus 6%. Last year, this indicator closed at 12%. For some states, this meant 21% interest. Meanwhile, the federal government finances itself at a rate close to the Selic rate, which is currently 10% to 11%. In practice, states end up financing the Union. Governor Geraldo Alckmin finds this, of course, an injustice. At Confaz (National Council for Farm Policy), we are discussing a limitation of the financial cost of the debt to the equivalent to the Selic rate. All these discussions are rekindled when we are going to debate the state ICMS tax rates. It is almost spontaneous that they return to the scene.

It is a complete tax reform. Is it impossible to carry out a sliced ​​tax reform as proposed by the federal government?

No. The government's proposal to slice the reform is good, except that the slices are of a good size. It is as if you divide the cake into four parts. You will eat a slice of that size! It is difficult and takes time. For example: one slice is the ICMS, the other is the exemption from the payroll and its impacts on Social Security and the distribution of PIS / Confis. These are not trivial discussions. It requires commitment, dedication, public spirit and federative vision.

But by abandoning the initial proposal to discuss only the ICMS on imports, does the government run the risk of not deciding even that?

We are at risk, but one thing does not exclude the other. We can approve the change in the ICMS charged on imports and open the discussion on other topics. In Brazil, we have already faced more important challenges, such as stabilizing the economy. I am sure that we can face a tax reorganization that will increase competitiveness.

To renegotiate the debt of the States, it will be necessary to change the Fiscal Responsibility Law. How timely is it to change this law?

We are all very committed to maintaining the Fiscal Responsibility Law, including the clauses that have proved to be efficient and effective in the states' fiscal adjustment program. Everyone - federal, state and municipal governments - is cautious about this. It is a shared caution. If there is any necessary change, it is possible to do it by consensus and, instead of representing a loophole in the program, it will be an element to reinforce stabilization.

São Paulo will receive new investments from companies like Huyndai and Foxconn. Is the state offering benefits and entering the fiscal war?

The fiscal resources of São Paulo are to finance the budget, which ranges from payroll to large projects. The budget is not here to subsidize private companies. The main attractions of São Paulo are the size of the market, proximity to suppliers, lower transportation costs. In addition, we do have the possibility to provide some flexibility in tax financing, if necessary. In the case of Huyndai, the benefit granted is exemption from the purchase of capital goods, with the accelerated return of taxes paid.

What tax benefits is the state offering Foxconn?

Foxconn has a broad investment program, which reaches US $ 12 billion. It is a very interesting project, because it starts with high import coefficients, but gradually, due to the company's own strategy, it starts to internalize more production. São Paulo has infrastructure, ports, proximity to the market. The company also mentioned that it needs to hire around 5 engineers. Few regions are able to supply this volume of qualified labor. What the State can do is evaluate the external infrastructure that the company needs and work on providing it.

WHO IS IT

A trained economist, Andrea Calabi has been in charge of the São Paulo State Finance Department since December last year. Between 2003 and 2005, during the first term of Geraldo Alckmin, he was the holder of the Planning portfolio. Previously, during the government of Fernando Henrique Cardoso, Calabi was president of Banco do Brasil and National Bank for Economic and Social Development (BNDES). He was also assistant secretary to José Serra at the Ministry of Planning.