FPM: Transfers depend on the performance of the economy; understand

In its third consecutive increase, the Municipal Participation Fund (FPM) distributes around R$4.2 billion to Brazilian city halls, this Thursday (20). After a drop in some transfers in April and May, the fund’s recent trajectory is positive. But, after all, why does the FPM fluctuate? O Brazil 61 explains the relationship between the performance of the country’s economy and the volume that the federal government transfers to municipal coffers.

The money that forms the FPM comes from what the country collects from Income Tax (IR) and the Tax on Industrialized Products (IPI). The law that created the FPM provides that these transfers are made every ten days — that is, every ten days.

The National Treasury Secretariat (STN) calculates the amount that entered the public coffers from these two taxes and, as provided by law, allocates 22.5% of the amount to Brazilian municipalities.

Budget expert Cesar Lima explains that, as it is linked to tax collection, the FPM depends on the pace of the country’s economic activity. “When economic activity decreases, you have lower consumption, which is directly reflected in the IPI, and you also have an effect on the general income of the population, an increase in unemployment, a decrease in the volume of wages. All of this influences the components of FPM. A slowdown in the economy leads to a drop in transfers”, he explains.

On the other hand, the more jobs the country generates, the more money enters the public coffers via IR collection, while the greater the consumer appetite, the more is collected through IPI. If the collection goes well, the FPM will too. This helps explain the growth in transfers in the first quarter of this year, when the country broke a collection record.

Between June 1st and 10th, for example, the Union raised around R$18.8 billion with IR and IPI. Of this amount, 22.5%, the equivalent of R$4.2 billion, goes to the FPM — an amount that still suffers a 20% discount to Fundeb, the Basic Education Maintenance and Valorization Fund, before being passed on to the city ​​halls.

It is worth remembering that, over the last 17 years, the National Congress approved three extra FPM transfers to municipalities. The calculation basis, however, is different. In July, city halls receive the equivalent of 1% of the IPI and IR collected by the Union between July of the previous year and July of the current year. In September, an additional 1%, referring to the period from September of one year to August of the following. In December, another 1%, resulting from the collection obtained between November of the previous year and December of the current year.

FPM: municipalities share R$3.4 billion from the 2nd installment of June