Economic Affairs Commission to vote on solution to fiscal war on October 7

Vice-president of the Economic Affairs Commission (CAE), Senator Luiz Henrique (PMDB-SC) informed the Senate Agency that he will put to vote, on the 7th, the bill that offers a possible way out of the fiscal war (PLS 130 / 2014). According to him, the biggest obstacle to the proposal, the resistance of the governing base, seems to be overcome with a statement by President Dilma Rousseff, given this week in Santa Catarina, in favor of the vote.

Another factor that may accelerate the decision of the CAE and the Senate Plenary, said the senator, is the possibility that the Supreme Federal Court (STF) would put on the agenda, in November, the Binding Summary Proposal 69, which considers the tax incentives unconstitutional relating to ICMS granted without prior approval by the National Council for Farm Policy (Confaz).

The president of the STF Jurisprudence Commission, Minister Gilmar Mendes, spoke on September 8 for the “admissibility and convenience” of the edition of the summary. According to the magistrate, the binding entry “mirrors the peaceful and current jurisprudence” of the Court. Finally, he suggested its inclusion on the agenda of the STF Plenary.

Source: Portal Agência Senado

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The other side of fiscal 'war'

O Globo - 25/07/2011


We have witnessed intense debates and discussions for which entrepreneurs, workers and politicians preach the fight against what was conventionally called "fiscal war" and "war of the ports". At the center of the debates is the granting of ICMS incentives by state governments, with the objective of attracting investments and promoting the flow of imports in regions with less economic dynamics.

The time is ripe for discussion, as the topic should be part of any proposed tax reform, and it frequents the media especially after the presentation of draft resolution No. 72 of the Senate. Such measure proposes the reduction to zero of the ICMS rates on imports and on interstate transactions of products from abroad and with no added value in the State of origin.

The justification for the Senate proposal is that tax incentives are "detrimental to national production, causing an explosion in imports with substantial losses in production and jobs". The draft resolution argues that reducing the tax rate to zero would remove the ability of states to grant incentives, thus ending fiscal competition.

In our opinion, in its original format, the proposal is impracticable because it does not encourage the State of origin to inspect its application, and it would be extremely difficult to distinguish, in interstate transactions, imported products and those without any elaboration in the State of origin.

The thesis that underlies the proposal, of a strong impact of incentives on imports, is not confirmed in the figures. The study “Imports and tax incentives: deconstructing myths”, prepared by Rosenberg & Associados for the Brazilian Association of Foreign Trade Companies (Abece), does not confirm this thesis. The work shows that 99% of the behavior of Brazilian imports in recent years is explained by GDP growth and exchange rates.

An ICMS tax incentive can have an impact on the effective price of the imported product in reais, but many of these products are treated differently by international treaties. In addition, since the ICMS is levied "on top" of the import tax, of up to 35% (an adequate protection for national production), the impact of the incentives becomes very small when compared to the valued exchange rate and the growth of the economy. They may have promoted a relocation of import flows through different routes and ports of entry, never a significant loss of production and jobs.

The STF has already pronounced on the incentives incisively and unanimously. It is important to clarify that, in STF decisions, the illegality refers to the fact that the operations were not submitted to Confaz's unanimity.

It is also worth noting that the legal basis for decisions, in addition to the Constitution, is Complementary Law 24, 1975, based on the then existing concern that the autonomy of States could lead to loss of revenue and the deterioration of state finances; and in the centralizing model in force at the time.

Both arguments are overcome with the advent of redemocratization, which defends political decentralization, and the Fiscal Responsibility Law, 2001. The effort to propose a tax reform is commendable, but this cannot happen based on an eminently political decision. and little technical evaluation. You cannot extinguish regional development instruments, which have brought great improvements to the poorest states, without putting anything in their place. We will not evolve if the proposals insist on outdated models and without a safe transition taking place, within an appropriate time frame.


It is necessary to change the focus of fiscal policy

Valor Econômico - 25/07/2011

The Brazilian public sector is no longer at risk of insolvency and there is no one who doubts the sustainability of public accounts in the short, medium or long term. The trajectory of net debt has fallen again and it is possible that it will be close to 30% of the Gross Domestic Product (GDP) at the end of the term of President Dilma Rousseff. There are unresolved issues, such as the rules of the social security system, that need to be improved so that they do not become a tax problem in the future; or the tax system, which penalizes production and investment. But these issues should not obscure the fact that the Brazilian fiscal framework is not a concern, especially when compared to the situation experienced by developed economies.

The point is that Brazilian fiscal policy can no longer be analyzed from the perspective of a public sector in financial crisis. At the beginning of the past decade, obtaining the primary surplus established as a goal was essential to demonstrate the government's ability to honor its commitments, which allowed investors and markets to calm down, with the consequent reduction in the cost of financing to Brazil. Fortunately, this is no longer the case. After a decade of fiscal adjustment, which coincided with the accumulation of a large reserve in international currencies, there is no longer any risk of default.

Brazilian fiscal policy can now be analyzed and implemented by the government in view of its effects on aggregate demand, as in any country with macroeconomic stability. And, in this way, it needs to be articulated with the monetary policy implemented by the Central Bank (BC). From this point of view, it can be said that Brazil left the emergency room and returned to live the normality of a market economy with democratic institutions.

The Brazilian Central Bank faces persistent inflation and adopted a strategy to bring inflation to the center of the target in 2012. The Focus report, with market forecasts, however, already estimates inflation of 5,2% for next year , indicating that the main analysts no longer believe it is possible to achieve the objective that the BC proposed.

At the same time, the external framework inspires great care, although the latest aid package to Greece, announced last week by European leaders, has reduced tensions and given reasoned hopes that the problems of that and other European countries can be resolved in a organized way. Most likely, however, these issues will drag on for quite some time.

In a complex scenario like the current one, it is up to the Brazilian government to act with prudence. In this sense, the best path to follow is to further coordinate fiscal and monetary policies and, thus, avoid a greater interest burden. There is fiscal space for this, without further sacrifice, as the federal revenue broke a record in the first half, with a real growth of 12,7% over the same period last year.

In the report for the assessment of income and expenses for the third two months, the government informs that it will raise R $ 3,87 billion this year more than it predicted last May. With this “extra” revenue, the government announced its intention to raise some mandatory expenses and the payment of outstanding credits remaining. The increase in mandatory spending will be on education, complementing the Union to Fundeb, which is very meritorious, and with social security benefits. But it is important to keep in mind that the “extra” revenue was due to the anticipation of the payment of portions of the so-called “Crisis Refills” by large companies. It is, therefore, a recipe that economists call “once for all” and cannot finance permanent spending.

It is very likely that the federal revenue will continue to grow significantly until the end of the year, not least because the signs of a slowdown in the economy are still tenuous, which can be easily seen by the large number of formal jobs being created. This “excess” of revenue should be spared, not with the aim of demonstrating the sustainability of Brazilian public accounts, but to help control aggregate demand and, in this way, inflation.