Fiscal risk from legal disputes grows 66% since March, led by pensions case
The Federal Supreme Court hold important, costly cases — Foto: Dorivan Marinho/SCO/STF
The fiscal risk calculated by the federal government for lawsuits filed against it has reached its most critical point in the last two years: R$2.6 trillion of impact to the taxpayer, according to the report to which Valor had access, updated in August. In comparison to the previous estimate, closed in March, there’s a 66% increase.
This figure refers to lawsuits whose chances of defeat in court have worsened in the last few months or have entered the government’s radar of concerns. Three cases are responsible for the increase. The main one is the so-called “lifetime review” — a revision of the social security retirement pensions to include years worked before 1994, which can increase the monthly amount received. The Federal Supreme Court (STF) has already formed a majority in favor of the pensioners and retirees but has not yet made the result of the judgment official.
Between March and August, the National Institute of Social Security (INSS) increased the estimated fiscal impact of the decision by more than 934%, to R$480 billion from R$46.4 billion, making this lawsuit the biggest focus of alert for the technicians who closely monitor the litigations.
According to these sources, the INSS started to consider the risk of the STF proclaiming a more generic thesis, that mentions not only retired people, but all the other insured people, such as those who receive death pension or sickness benefits. In respect for the accounting principle of prudence, the federal government always projects the worst-case scenario.
The other two cases were not alarming until then, but are now, adding to the total fiscal risk. One involves the incidence of social taxes PIS and Cofins on imports, with an impact of R$325 billion. The other discusses whether the granting of tax incentives interferes with the sales tax ICMS quota passed on to the municipalities. Defeat could cost the federal government around R$279 billion.
The STF has already recognized the general repercussion of both cases, which may go for trial by a panel of justices at any time. The rapporteurs, Justices Nunes Marques and Gilmar Mendes, respectively, may even do so directly in the virtual plenary session, whose agenda is not managed exclusively by the Court’s new chief justice Rosa Weber.
Even with a lower impact (R$151 billion), the government’s attention is also drawn to the appeal against the decision of the Superior Court of Justice (STJ) which admitted the special retirement of security guards who work with or without firearms, as long as they can prove the harmfulness of their activity. The case is also advanced in the Supreme Court.
Most of the R$ 2.6 trillion involves cases classified as “possible” risk of judicial defeat. There are also those of “probable” risk, whose unfavorable outcome to the federal government is even closer to happening, according to technical estimates. This portion is calculated at R$278.2 billion.
The number will be sent to Congress by October 10, for a fine-tuning of the 2023 budget before the congressional vote. Among the cases of “probable” risk is the discussion about the supplementation of the Fund for Maintenance and Development of Elementary Education (Fundeb), with a R$29.4 billion impact.
Another lawsuit to be included in the update of the so-called “Fiscal Risks Annex” of the budget is the one that discusses whether or not charities in the health, education, and social assistance segments have immunity from social security contributions. The federal government’s defeat could cost R$22.5 billion to the taxpayer.
Prior to last month, the highest total fiscal risk in two years had been recorded in August 2020 — R$2.3 trillion. In the meantime, the estimate has never fallen below R$1.8 trillion.
Sources in the economic team say that, although worrisome, the amount referring to the judicial demands will not necessarily be converted into court-ordered debts for next year. First, it is necessary to wait if the conviction will actually take place. In some cases, a change in the vote of just one Supreme Court justice would be enough to reverse the situation.
Moreover, even if the federal government is defeated, the execution of the sentence is not carried out exclusively by means of court-ordered payments — it can happen, for example, through an agreement for the compensation of debts. In other cases, an unfavorable judicial decision may only mean less revenue than expected.
A survey by the Economy Ministry shows that spending on judicial claims has been rising gradually. From 2014 to 2021, the share of sentences in total primary expenditure will jump to 3.4% from 1.8%. Sources points as reason the increases in litigation and the greater speed of Justice, with tools such as the virtual plenary.
The budget law foresees a total of R$73.99 billion in court-ordered debts for next year, of which R$22.31 billion in debts from previous years. If we consider the small value requests (RPV), which total R$26 billion, the expenses with judicial demands would exceed R$100 billion.
For public accounts specialist Leonardo Ribeiro, economic advisor to the Senate, the government needs to promote mechanisms to meet accounts to prevent these fiscal risks from becoming budget expenses. “One solution is the securitization of public sector assets and liabilities using market instruments. This offsetting of debts would be an element to restructure the federal government’s debts, mitigating fiscal risks arising from judicial decisions,” he explained.
Daniel Couri, head of the Independent Fiscal Institution (IFI), said that the judicial disputes certainly increase the fiscal risk of the federal government. “It is important to have clarity about these numbers and it seems to me that the federal government is moving in that direction. But dealing with such a risk is a problem when you have a high and expensive debt for the standards of emerging countries,” he said.
The Federal Attorney General’s Office (AGU) said that its role is to “evaluate and classify the fiscal risks of lawsuits filed against the federal government, independent agencies, or public foundations based on legal criteria.” It also stated that “the risk classification is subject to change as each case evolves within the Judiciary”. The AGU also said that in 2021 the court decisions favorable to the federal government avoided the disbursement of R$418 billion, “allowing these amounts to be directed to sectors such as health, security, and education.”
*By Luísa Martins, Edna Simão — Brasília
Source: Valor International