A strategy to reach qualitative reform of brazilian

A Strategy to Reach Socioeconomic Development

By Strengthening Local Government’s Saving and

Investment Capacities

Proposition of Action to Brazilian Public Administration

2

RELATION BETWEEN SAVING RATES AND GNP GROWTH

Accountability, Local Government and Public Finance

GNP Growth

Savin

g R

ate

s

3

BRAZIL’S GNP GROWTH RATES


4

BRAZIL’S SAVING RATES (% OF GNP)


Domestic SavingsExternal Savings

5

SAVINGS & INVESTMENT RATES


INVESTIMENTDOMESTIC SAVINGS

6

BRAZIL’S PUBLIC INVESTMENT RATES


1940 1950 1960 1970 1980 1990 2000 2010

1315.18 16.1

21.4 22.21

18.2416.68 17.5

2.7 3.42 4.22 3.71 2.68 2.58 1.92 2

14.216.4

20

25.2 25.2

3335 35

TAX BURDEN

PUBLIC INVESTMEN

T

TOTAL INVESTMENT

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Main Causes of Low Public Investment Rates

Excess of Current Expenditure Sistemic Waste and Corruption Decisions Made Just through Political CriteriaWeak and Uncoordinated Planning

SystemConcentration of Resources in the

Federal Level


8

REVENUE DISTRIBUTION AMONG FEDERATE ENTITIES


60

25

15

Federal State Municipal

Accountability, Local Government and Public Finance 9

Today’s Municipal Attributes

Public Health Public Education Social Works Urban Transportation Housing Water, Sewer and Waste (Sanitation) Urban Traffic Licensing of Works, Services and Goods Production Environmental Regulations Tourism Promotion Public Works Law Enforcement Urban Security Cultural Affairs Attract New Businesses to Generate Income and Jobs

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What Got to Be Done Without Further Delay?

Increase saving rates in the 3 levels of government: Federal, State and Municipal.

Redistribute investment resources between the 3 levels of government, in order to decentralize and easy the fiscal burns of states and municipalities, and increase their investment capacity.

Increase total public investment rates at least to 3.5% of GNP, in order to assure a Country’s total saving and investment level of 20% and a steady and sound GNP Growth of at least 4% a year.


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How to Reach It? By reforming the Fiscal Responsibility Law (Lei de

Responsabilidade Fiscal) to turn mandatory a level of savings (and so of Investment) in the 3 levels of government.

Savings of 3 levels of government should be gathered in a Federative Savings and Investment Fund (FSIF, similar to education’s FUNDEB), in the form of quotas, with funds to be rescued under certain rules stablished by law.

FSIF would make a redistribution of investment funds between the 3 levels of government, easing the unbalance of today, and allowing more investment in the sub-national levels.

FSIF should also improve other useful economic operations, such act as PPP’s guarantor fund, act as colateral to project financing and so forth

FSIF should be administred by BNDES, who would appraise the proposed projects and liberate the funds to finance them.Accountability, Local Government and Public Finance

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FSIF Financial Prospectives (GNP of US$ 2,3 trillions, Tax Burden 35%)

LEVEL OF GOVERNMEN

T

MANDATORY SAVINGS (% OF TOTAL INCOME)

INVESTMENT (% OF

SAVINGS)

ESTIMATED SAVINGS

AMOUNT PER YEAR (in US$

Billions)

ESTIMATED INVESTMENT AMOUNT PER YEAR (In US$

Billions)

FEDERAL 6 15 48 12

STATE 2.5 25 20 20

MUNICIPAL 1.5 60 12 48

TOTAL 10 100 80 80


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FSIF Investment Rules

Savings will be recovered by the levels of government only by presentation of investment projects in areas to be specified by law, to be appraised and approved by FSIF manager (BNDES).

To each state and city will be assured access to investment funds by at least the amount of their own saving.

Acess to investment funds in excess of their own savings will depend on certains circunstances, to be regulated by law, for instance, stimulating project competition among sub-national entities


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Possible Consequences of the FSIF Strategy to Public Services

Increase government saving rates Increase public investment, boosting the

economy in general Reach a desirable, rational and beneficial

Decentralization of resources to the state and municipal level

Promote a Qualitative Reform of public administration

Allow the planning, better coordination and implementation of projects in key areas of government, renewing infrastructure and public services, avoiding duplications and project collisions

Boost public services’ efficiency and quality Reduce public debt in the long runAccountability, Local Government and Public Finance

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Possible Consequences of FSIF to Taxpayers and Society as a Whole

Allow consistent reduction of interest rates

Easy taxation burns Get a steady growth of GNP Easy inflationary pressures Get Better public services by LGs Allow private investment to grow steadly Allow investment to ameliorate the

infraestructure in the country and in the cities

Better quality of life to the populationAccountability, Local Government and Public Finance

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In The Short Run Legislation would be passed allowing the

Sub-National Federate Entities, during the first five years , to transform part of their debt into capital, as Quotas of FSIF

The amount of debt to be transformed into capital (FSIF Quotas) would correspond to 1.5% of gross (Municipalities) or 2,5% (States) of the fiscal year total revenues of the Sub-National Federate Entities

Question to specialists: How would this operation be accounted in the public entities balance sheet?


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Conclusions Increasing Savings and Investment by

government is a key issue to transform Brazil into a real developed country, socially fair.

Increasing S and I by government should be reached by a strategy based upon a change in the Fiscal Responsibility Law, in order to become savings and investment mandatory, gathered in a Federative Fund.

This would bring positive consequences to the public services and to society as a whole.

In the future, public Saving and Investment levels should be considered the rate of success or failure of a public administration.


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SOURCESPastore, A.C. “O Caminho do

Crescimento”, 2009Araújo, Carpena & Cunha, IBGEFGV-CPDOC: Santos Jr.; Bugelli; Ellery

& Gomes; MerendaPastore, A.C.; Pinotti, M.C.;Pagano,

T.A “Limites ao Crescimento Econômico” Forum Nacional 2009