spending

The title of this article refers to a word not yet incorporated into Brazilian dictionaries. In Portugal, however, it has already been endorsed by the renowned dictionary of the Lisbon Academy of Sciences, which defines it as the “practice that consists in the exaggerated expenditure of money, in the realization of excessive expenses or expenditures and little evident utility, especially on the part of the State. or other public entities”.

In the recent election campaign, I didn't hear any candidate for any office mention cutting wasteful spending. On the contrary, many defended, often as a mere demagogic appeal, the expansion of expenses.

It is reasonable to admit that some proposals for new expenditures are justified, but they should be accompanied by measures aimed at containing expenditure, otherwise their financing will be at the expense of raising the known high tax burden, or an irresponsible increase in public debt.

In addition to extreme weather events, it cannot be ignored that the next government will face an adverse international scenario, involving inflation and recession in developed countries, economic slowdown in China impacting commodity exports, energy crisis in Europe, hunger in Africa and an unpredictable trajectory. in Russia's aggression against Ukraine.

In the context of the enormous needs of the Brazilian State, it would be advisable, although unlikely, to implement a program to restructure public spending, which would honor the efficiency, proclaimed in art. 37 of the Constitution, and eliminate spending.

There is an inexhaustible list of expenses that drain revenue and compromise the provision of public services: the evil secret budget, a permanent source of misuse of public money and corruption; the positions of deputy in the Executive Power of the Union, States and Municipalities; parliamentary “representation” quotas; the remuneration and “advising” of councilors in small municipalities, which subsist at the expense of transfers; the remuneration of public agents for participation in boards of state-owned companies; the working hours of the military police, which allows the provision of private services or participation in “militias”; the “indemnities” in the Legislative and Judiciary Powers, and in the Public Ministry; the excess of diplomatic representations abroad, without any economic or political foundation; double vacations and conversion into remuneration, special holidays and recesses in the Judiciary and the Public Ministry. Utopia? Certainly.

 

spending

The title of this article ('Despesismo') refers to a word not yet incorporated into Brazilian dictionaries. In Portugal, however, it has already been endorsed by the renowned dictionary of the Lisbon Academy of Sciences, which defines it as the “practice that consists in the exaggerated expenditure of money, in the realization of excessive expenses or expenditures and little evident utility, especially on the part of the State. or other public entities”.

In the recent election campaign, I didn't hear any candidate for any office mention cutting wasteful spending. On the contrary, many defended, often as a mere demagogic appeal, the expansion of expenses.

It is reasonable to admit that some proposals for new expenditures are justified, but they should be accompanied by measures aimed at containing expenditure, otherwise their financing will be at the expense of raising the known high tax burden, or an irresponsible increase in public debt.

In addition to extreme weather events, it cannot be ignored that the next government will face an adverse international scenario, involving inflation and recession in developed countries, economic slowdown in China impacting commodity exports, energy crisis in Europe, hunger in Africa and an unpredictable trajectory. in Russia's aggression against Ukraine.

In the context of the enormous needs of the Brazilian State, it would be advisable, although unlikely, to implement a program to restructure public spending, which would honor the efficiency, proclaimed in art. 37 of the Constitution, and eliminate spending.

There is an inexhaustible list of expenses that drain revenue and compromise the provision of public services: the evil secret budget, a permanent source of misuse of public money and corruption; the positions of deputy in the Executive Power of the Union, States and Municipalities; parliamentary “representation” quotas; the remuneration and “advising” of councilors in small municipalities, which subsist at the expense of transfers; the remuneration of public agents for participation in boards of state-owned companies; the working hours of the military police, which allows the provision of private services or participation in “militias”; the “indemnities” in the Legislative and Judiciary Powers, and in the Public Ministry; the excess of diplomatic representations abroad, without any economic or political foundation; double vacations and conversion into remuneration, special holidays and recesses in the Judiciary and the Public Ministry. Utopia? Certainly.

 

 

An unlikely government program

The electoral debate, so far, has not been encouraging, due to the scarcity of proposals aimed at overcoming the country's numerous problems. On the contrary, personal rudeness, demagogic or naive propositions, insistent recitation of poorly decorated or insubstantial statistics prevail.

We have accumulated a robust agenda of problems, which this article does not pretend to exhaust. Despite this, I dedicate a few lines to what I believe should be priorities in a government program: eradicating poverty and reforming the State.

Cash transfers to the vulnerable, as has been the case for decades, are indispensable programs. However, it is imperative that they be accompanied by initiatives that imply the social advancement of the poor by converting aid into employment. Without this, there will be the perpetuation of a framework that only takes advantage of populism, in permanent flirtation with authoritarianism.

State reform cannot be confused with proposals that are limited to defining rules for the promotion or hiring of public servants. It has to be something much more ambitious: establishment of a set of parameters of efficiency, sustainability and social responsibility that must be observed; implementation of a national modern management system in public education, health and security and in the prison network; implementation of a permanent program to reduce bureaucracy; restoration of budget order; restructuring of public spending, controlling its evolution; reform of the Judiciary, with emphasis on rationalizing decision-making processes and eliminating procedural pathologies; establishment of remuneration standards for civil servants of all Powers, with the elimination of trinkets, double vacations, special shifts and various indemnities, and with strict observance of the remuneration ceiling; disciplining the State's participation in the management of SOEs and setting objective criteria for privatization.

Confronting poverty and predictable fiscal turmoil will demand extraordinary revenues. Fortunately, it is possible to generate these tax revenues without burdening taxpayers who invest in the real economy, promoting the suppression of privileges for investments in the financial market and in tax havens, the elimination of tax loopholes and the reduction of tax litigation through a daring transaction program.

It is true that this agenda contains complex problems without trivial solutions. But it doesn't hurt to reflect and propose.

 

Secret budget, provisional federation

The history of Brazil, as it is known, is marked by fantasies and omissions, such as the “Ipiranga cry”, the silence about the decisive role of Empress Leopoldina in independence and the libertarian movements of 1817 and 1824, the military coup euphemistically called “proclamation” of the Republic, the mythology surrounding Tiradentes, whose profile was produced in the likeness of Christ as portrayed by Renaissance painters, etc.

We also have a taste for the unfinished. Decree nº 1 of the Republic, signed by Marshal Deodoro da Fonseca, “head” of the provisional government, provisionally “proclaims” the Republic and the Federation, which, in my opinion, remain provisional. the art. 2 of Constitutional Amendment nº 32, of 2001, allowed the existence of permanent provisional measures, without even bothering dictionaries.

Raised on several occasions in the imperial period, the Federation of 1889 was an unfinished copy of what existed in the United States, in absolutely different circumstances: there, ascendant and contractual; here, descending and normative. It was yet another manifestation of our deep-rooted mutt complex, which uncritically worships ideas gestated abroad.

Since then, we have experienced a broken federalism, contrasting with the discourse of a federative pact that never existed.

Cooperative federalism, provided for in art. 23 of the Constitution, has been awaiting discipline since 1988. And nobody cares about that.

The Constitution says that ICMS is a selective tax, based on essentiality. A complementary law recognized, albeit belatedly, that fuels and lubricants are essential products and, therefore, cannot have a higher rate than the modal rate. Nobody questions the essentiality of those products. It is postulated, however, compensation to the States for a “loss” imposed by the Constitution.

Since the 1965 tax reform, the constitutionalization of income sharing has been added to the tax competence of the federative entities, under the pretext of confronting flagrant inter-regional inequalities. This objective, however, was never achieved, even because the sharing criteria are not consistent with it.

This federative disorder was aggravated by the “parliamentary amendments”, which, at first, were not very expressive in fiscal terms. Afterwards, they grew significantly and assumed an imposing character. culminated with the monster of the secret budget. They are the ostensible face of the waste of public money, of unvirtuous political co-optation and, not infrequently, of corruption.

Article: The precariousness of the rule of law

The Constitution proclaims, in its art. 1, that Brazil is a democratic state of law, which assumes the submission of all to the law and the popular will.

Stability and clarity are minimum requirements for law enforcement. This is not what you see in Brazil. Standards are changed frequently, often with deplorable technical quality. The interpretation given to the norms also changes continuously, without plausible justification.

Evidence of this normative degradation, to the detriment of legal certainty and the rule of law, abounds in the media. Constitutional amendments are approved on the spot. Judicial decisions of great relevance are taken in virtual plenary. I present below some examples of this degradation.

Constitutional Amendment No. 87, of 2015, which deals with the taxation of ICMS on non-face-to-face interstate transactions, establishes, in art. 2, that its effects would occur from 2015, while, in art. 3, fixed 2016. This primary error went completely unnoticed.

The Constitution provides that the taxation of fuels and lubricants by ICMS should, among other requirements, have a uniform rate throughout the national territory.

Complementary Law No. 192, of 2022, met the constitutional requirement of specification of those products for the establishment of the uniform rate, however it invaded the competence of the States to establish criteria for its establishment. That's not what the Constitution says. The States challenged that rule, including in the allegations that the uniform is not identical. That's not what the dictionary says.

A recent court decision established the non-levy of income tax on alimony received, using, among other reasons, that it would be a case of double taxation. It is not what is in the arts. 4 and 8 of Law No. 9.250, of 1995, which provides for the deductibility of alimony paid. On the contrary, a hypothesis of double non-taxation was generated. If a couple separates, the tax will not apply to who pays or who receives. An invitation to simulation, especially for the rich.

Since the institution of the ICM, in 1967, it was understood that that tax and the ICMS, its successor, were levied on interstate transactions, whether or not there was a transfer of ownership. A court decision in 2021 reformulated this understanding, considering the incidence without transfer of ownership unconstitutional. Have we spent more than half a century living with this unconstitutionality without anyone realizing it?

 

“But the fact that it is difficult should not serve as a disincentive or hopelessness.”

  1. What is the importance of promoting ethics in a time as troubled as the one we are experiencing in the country?

Ethics, in theory, permeates all relationships within the State and in society. It is true that in Brazil we never had a solid structure of values, which would support permanent ethical conduct. Unfortunately, I realize that our fragile ethical values ​​are in a marked and continuous process of degradation.

I can give several examples of how State actions or concessions affect the behavior of the whole society. For example, the remuneration ceiling for public agents, established in the 1988 Constitution, was never effectively observed. To circumvent the ceiling, remunerations are created, such as housing allowance or travel allowances, which are not subject to Income Tax. It's not illegal, but it's not ethical. When the State practices this type of concession, what message does it convey to society? We also have quotas for parliamentary representation, which make room for parliamentarians to practice the so-called “cracks” and, also, the “Rapporteur's Amendments”, involving billions of reais, which it is not known who they go to.

Such behaviors, when normalized, contaminate the whole society, which starts to devalue or not believe in ethics as a path to development.

How can ETCO's performance contribute to reversing this scenario?

ETCO represents a very special trench in the defense of a fair business environment, in which competition and not cleverness prevail, and in facing problems of competition ethics, especially those arising from taxation. Success has been partial, because there are powerful opposing interests.

For example, we have the problem of persistent debtors, who create businesses not as an instrument to produce or market their products, but to accumulate wealth without paying taxes. In 2003, on the initiative of ETCO, article 146-A was introduced into the Constitution to address this problem. Regrettably, progress was not made in editing the necessary supplementary law. The bill is in the Federal Senate [PLS 284/17], but it is advancing at a very slow pace, because powerful forces oppose its approval.

How to promote change?

Charles de Gaulle said that indignation is not a value. But it's a good start. Indignation leads to awareness, which in turn leads to conviction. Only when indignation manages to flow within Brazilian society will there be a consistent defense of ethical values. It's difficult? Yup. Cultural problems are difficult to solve. But the fact that it is difficult should not serve as discouragement or hopelessness. Only as a serious obstacle to be faced, against which this conscious indignation must move.”

 

 

the spanish lesson

In April 2021, Spain decided to set up a commission made up of specialists, recruited from within the government and outside it, to produce a diagnosis of its tax system and, from there, prepare proposals to improve its efficiency and adjust it to the new requirements of environmental taxation. and the digital economy.
Last February, the commission presented, for debates, the “Libro Blanco sobre la Reforma Tributaria”, a consistent 788-page document.
Spain made the right choice. Any reform must be preceded by a diagnosis, which specifies the problem and transparently points out solutions accompanied by their repercussions. Otherwise, it is a mere authoritarian package, which often embeds less than virtuous interests.
The Spanish path is not unheard of. In the 1960s, the Special Commission for Tax Reform was created in Brazil, made up of qualified specialists, whose work resulted in Constitutional Amendment No. 18, of 1965, our most daring reform of consumption taxation.
No one doubts the existence of numerous problems in the Brazilian tax system. However, it is necessary to examine them with depth and impartiality.
The establishment of a commission today could be a good start. Some criteria to guide the work would also help: only reform what is essential, considering the benefits and costs of the change; seek true modernity, which includes environmental taxation, the digital economy, the parsimonious use of extrafiscality, the new financing of social security; curb abusive tax planning, which erodes tax bases and generates competitive imbalances.
The theme, however, should not be limited to tax reform, in the strict sense, but should pay attention to issues that are always ignored: tax bureaucratism, insistently alleged as a pretext for propositions and never faced; fiscal federalism, a patchwork quilt that harbors inconsistent criteria for income sharing and suspicious voluntary transfers, and does not know the specification of the powers of federative entities and the cooperation arrangements between them; and pathological proceduralism, the main source of the astonishing volume of litigation and legal uncertainty.
As Mário Henrique Simonsen, a member of the Reform Commission, taught: “If it is well stated, the most difficult problem in the world will be solved. Poorly stated, the easiest problem in the world will never be solved.”

Everardo Maciel explains why he doesn't believe in projects that suggest refounding our tax system

THE NEW SEASON OF TAX REFORM

 

by Everardo Maciel *CLICK HERE 3

Tax systems are living models that portray the complexity of economic and social relations in a society. There are many reasons against overly ambitious tax reform claims

 

The imperfection and complexity of the Brazilian tax system, which are, moreover, characteristics common to all tax systems, stimulate a profusion of plastically elegant and disruptive solutions, but which ignore the risks and costs inherent to any change.

Tax systems result from clashes that involve conflicts of reason and interest in parliaments. They are not models, applications or, in the past, works by copyist monks. On the contrary, they are living models that portray the complexity of economic and social relations in a society. They are therefore inevitably imperfect and complex.

This complexity, in turn, is increasing, because tax systems will, over time, incorporate changes - some legitimate, others not - that distort the original conception.Caption Everardo Maciel

Imperfection and complexity stimulate new conceptions aimed at refounding tax systems, in the context of an improbable and little useful idealization.

Peremptory statements are frequent that denounce the complexity, inefficiency and regressiveness of the Brazilian tax system, without there being a minimally consistent debate on the matter.

There are many possibilities for qualifying complexity. What makes a tax system truly complex is the overload of bureaucratic requirements, the profusion of special regimes and the indeterminacy of concepts and procedural delays that lead to legal uncertainty.

Issues such as number of rates or taxes and overlapping incidences are easily overcome by using good computer applications.

Problems exist and will always exist, which is an excuse for continuous action focused on strategic matters, aiming at eliminating or mitigating them.

The problems of ICMS and PIS / Cofins are remedied with surgical changes.

There are many reasons against overly ambitious tax reform claims.

Changes have costs and risks. Normative stability, in the tax sphere, is a relevant asset for deciding on private investments.

In an interview with Veja (27/09/2017), Eldar Saetre, president of Statoil (Norwegian state oil company), stressed that his major concern in relation to Brazilian taxation was unpredictability. He added that, in Norway, the taxation of oil activity was high (78%), but stable.

In an interview with the Financial Times, published in Valor (28/04/2017), Warren Buffet, one of the largest investors in the world, said: “People invest when they think they can make money, and not because of taxation”.

In addition, there are risks to the treasury and the taxpayer. Any change has repercussions on tax rates and tax bases, in an unpredictable way and differently on taxpayers.

Ultimately, major changes can take on an adventurous character. Anyway, systems, like the tributary, are only well known with real mass.

In everything, we cannot forget our undying vocation to copy models from other countries, built under peculiar circumstances and different from ours. It is cultural servility, opposite and equally mediocre of xenophobia in the field of ideas.

The most serious thing is that we seek to copy models in frank obsolescence, such as the Value Added Tax (VAT), which is complex, vulnerable to evasion (the carousel or banknote ride is a well-known evasion modality in Europe) and unable to assimilate properly the digital economy.

It is good to pay attention to what is being discussed at the border of tax policy. With a solid academic basis, the United States is already discussing the formulation of a model for taxing consumed income, which aggregates VAT and Income Tax characteristics, innovating them.

Meanwhile, in Brazil, little or no attention is paid to our most severe tax illnesses: bureaucracy, conceptual indeterminacy and the tax process.

Bureaucracy reigns triumphantly in the tax system. Its pearls are multiple registration, negative certificate requirements, tax refunds, obstacles to compensation, etc.

It is certain that conceptual indeterminacy will always exist, demanding the clarifying intervention of Justice. After all, there is no closed concept system. What is reprehensible is exaggeration.

We have not yet pacified concepts such as billing, gross revenue, indemnity for tax purposes, irregular dissolution of companies, joint liability of partners, tax substitution, abusive tax planning, etc. It's an absurd.

The process, from launch to execution, is exquisite in its slowness and inefficiency.

In the Union, the amounts under administrative and judicial discussion added to the credits recorded in active debt correspond to more than double the annual tax collection.

A report produced by the National Council of Justice (CNJ) shows that of the impressive 80 million cases pending in court, approximately 30 million are related to tax enforcement.

Although it contradicts the bureaucracy and the litigation industry, the real reform is to eliminate these tax illnesses. However, it lacks the charm of designing a new, unpredictable and unnecessary tax model.

Ambitious claims, by exacerbating tax conflicts, including in the context of fiscal federalism, always end in impasses, in addition to removing the focus of Brazilian tax illnesses. It is worth remembering Einstein's teaching: “it is insanity to keep doing the same thing and expect different results”.