Governor of Rio asks Lula to review the Tax Recovery Regime

According to the government of Rio de Janeiro, the review of the RRF is necessary because the states had their accounts impacted in the second half of 2022, due to the change in the ICMS (Tax on Circulation of Goods and Services) rate for fuels, energy and telecommunications.

According to the government of Rio, the state lost BRL 5 billion with the reduction of these taxes. “The president said that the matter is of great interest to him and that whatever he can do to help the states, he will do”, stated Castro at the end of the meeting.

According to the Rio State Treasury Department, since joining the RRF in 2017, Rio has already paid R$6.8 billion of its public debt. By the end of this year, the payment of another R$ 3 billion is expected. Until May of this year, the state’s total public debt was R$ 178 billion.

Demands

At the end of May, Castro and the governors of Rio Grande do Sul, Eduardo Leite, of Goiás, Ronaldo Caiado, and of Minas Gerais, Romeu Zema, who are also in the RRF, met with the Minister of Finance, Fernando Haddad, and delivered a letter with demands for the renegotiation of the regime’s goals.

Among the demands, according to the government of Rio de Janeiro, is the extension of the period of financial aid from the current nine years to 15 or 20 years.

There is also a request for a change in debt charges, so that it is recalculated based on the Extended Consumer Price Index (IPCA) plus 1% or 2%, that is, without the Monetary Update Coefficient.

Other demands refer to the review of the default rule for non-compliance with fiscal targets and the easing of restrictions on personnel expenses to guarantee more autonomy to the state.

According to a note released to the press by the government of Rio de Janeiro on Monday night, the Union has already signaled that it should renegotiate the bases of fiscal recovery. The National Treasury Secretariat, according to the note, advanced in the discussion of increasing the term of validity of the regime and making other rules more flexible.

The government of Rio de Janeiro also informed that Lula was receptive to evaluating the change in the debt index of the states.

Historic

The RRF, created by Complementary Law 159 of 2017, allows states in a situation of fiscal imbalance to enjoy benefits, such as easing tax rules, granting credit operations and the possibility of suspending debt payments.

On the other hand, the Federation units must adopt institutional reforms that allow the restructuring of the fiscal balance, such as the approval of a spending ceiling, the creation of a supplementary pension and the equivalence of the rules of the Own Social Security System (RPPS), in terms of fit, to the rules of the servants of the Union.

The state of Rio de Janeiro requested entry into the Tax Recovery Regime in 2017, due to financial difficulties presented at the end of 2015, which occurred, among other reasons, due to the drop in the international price of oil, since this reduced the values ​​of royalties received by the state.

Another factor that contributed to the Rio crisiswhich became a situation of public calamity in 2016, were the investigations of Operation Lava Jato, which fell on the state oil company Petrobras, headquartered in Rio.

At the same time that tax collection declined, the state concentrated efforts in order to complete preparations for the Rio 2016 Olympic Games.

The state’s financial crisis even compromised the payment of state employees and the operation of public services.

In July 2017, Rio officially asked to join the Fiscal Recovery Regime, which would guarantee the state special conditions for paying debts, in exchange for guaranteeing fiscal balance.

Among the commitments assumed by the state at the time were the privatization of the sanitation company, Cedae; the reduction of tax incentives; and the alteration of the state pension and retirement system. The state’s Fiscal Recovery Plan was approved in September of that year and lasted until 2020.

A new RRF was created by the Union in January 2021. Rio de Janeiro, unable to balance its accounts in the previous RRF, filed a request to join the new regime in May of that year, but its plan would only be approved in June of last year .

With the new plan, the fiscal recovery regime will last until 2031. Rio de Janeiro will have 30 years to settle its debts with the Union.