Economic team proposes aid to states and municipalities

BRAZIL POLITICS - Report 14 Apr 2020 by Murillo de Aragão and Cristiano Noronha

The economic team is proposing an alternative to the bill that provides relief to states and municipalities approved by the Lower House on the evening of Monday, April 13. The text will now be analyzed by the Senate. According to the Lower House text, the federal government will compensate for losses in the ICMS and ISS collection for the months of April to September of this year when compared to the same months of 2019. The transfers will be made from May to October. The cost is estimated at around R$ 89 billion.

The idea of the Ministry of Economy is that a fixed amount, that does not depend on decisions by governors and mayors, should be established. The form of apportionment can be according to the amount of collection of each state or based on the size of the population. For the economic team, the most important thing is that it is fixed, because with that, every effort to improve collection remains with the state and municipality itself, encouraging good management of public resources. Another criticism from the Ministry of Economy of the approved text is that São Paulo, Minas Gerais, Rio de Janeiro, Rio Grande do Sul and Paraná would have 60.10% of ICMS resources. In the case of the state capitals, São Paulo, Rio de Janeiro, Belo Horizonte, Curitiba and Salvador would have 83% of the ISS. The government is proposing, by provisional measure, an aid package of R$ 77.4 billion, divided as follows: R$ 40 billion through direct transfer, R$ 22.6 billion through suspension of debts with the federal government for six months and R$ 14.8 billion through suspension of payment of debts with public banks in 2020.

Our assessment is that the government’s proposal should reopen negotiations with Congress, with a chance of progress.

In addition to economic disagreements, the political issue has weight in this debate. As the bill approved by the House benefits the largest states, São Paulo and Rio de Janeiro, which are governed by João Doria (PSDB) and Wilson Witzel (PSC) – Bolsonaro’s opponents – there is less willingness from the Planalto to collaborate with the states.

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