Covid-19 pandemic, last year’s booming revenues helped improve expenditure by 12.4%
Ursula Dias Peres — Foto: Silvia Zamboni/Valor
The various and successive extraordinary conditions that have marked the current term of office of governors — such as the Covid-19 pandemic and last year’s surprising tax revenues — resulted in a larger share of state spending for education and health in the first half of 2022 while security and social security expenses lost space. Driven by higher investments in an election year, areas linked to infrastructure, such as transportation, urban planning, housing, and sanitation, also grew. In the general scenario of the 26 states and the Federal District, the highlight is social assistance, which has small participation but expanded at an accelerated pace under the effect of income transfer programs that states started to offer to mitigate the social impact of the health crisis.
A survey by the Center for Metropolitan Studies (CEM), a public think tank run by the University of São Paulo, shows that the fiscal situation of the states favored public policies in the first half of the year. The technical note produced by Ursula Dias Peres and Fábio Pereira dos Santos indicates, however, that in addition to the deficit in the demand for services in several areas, the recent reduction in sales tax ICMS rates in important collection sectors brings uncertainties for the second half of the year and the future sustainability of the favorable picture of the first half of the year.
Health and education combined absorbed R$133.09 billion in state spending from January to June this year, with a real increase of 12.4% against the same months last year and 16.5% compared to 2019. These expenditures include personnel, costs, and investments. The total expenses of the states, discounting compulsory transfers, grew at a much slower pace, of 6.1% and 6.2%, respectively. The faster-than-average pace made the combined share of health and education improve from 27.6% to 30.3% of total expenses from 2019 to this year, also considering the first half. They considered the expenses paid, with values updated by the benchmark inflation index IPCA. The data were taken from the fiscal reports submitted by the states.
In the same period, security, which reached from January to June this year spending of R$46.6 billion and a share of 10.6% of total spending, lost 0.6 percentage points of share against equal months of 2019. The share of the most representative of the functions, Social Security, was also reduced to 22.9% from 24.1%. States spent R$100.37 billion in the first half of this year.
The salary hikes, the initial projections of higher sales tax ICMS collection for 2022, and the compensation for expenses that have already fallen in 2020 contributed to the advance of 24.9% in real spending on education in the first half of 2022 against the same period last year considering all the federated entities, said Ms. Peres, who is a professor of public policies at the University of São Paulo’s School of Arts, Sciences and Humanities. She also recalled that states that did not meet the constitutional minimum of 25% of revenues in 2021 must do so by 2023, which drives spending on education this year.
In health, the expenditure from January to June 2022 advanced only 0.7% compared with the same months last year. The area, however, has a high base of comparison as spending has been boosted since 2020 because of the health crisis. The total increase since the first half of 2019 was 17.5%. Mr. Santos, a researcher associated with CEM, evaluates that health is expected to continue presenting real expenses above the pre-pandemic level at least in the next few years, due to services that began to be offered and that generated new demands. Ms. Peres also highlights the additional demand for public health services generated by the demand restrained during the pandemic and by the patients with sequelae of Covid-19. There is also the effect of investments in health facilities, which generate annual current expenses of up to 90% of the value of the work, as is the case of hospitals, she said.
The evolution of spending on social security and security, on the other hand, was diverse. Although with a real increase of 2.9% from January to June of this year in comparison to the same period last year, social security spending was only 0.9% above that of the first half of 2019. The reduction in the share of pension spending, Mr. Santos points out, was generally not due to structural measures such as pension overhauls. The stagnation of spending, he says, is related to the restrictions of Complementary Law 173, which in 2020 limited hiring and salary increases to civil servants in return for extraordinary transfers to tackle the effects of the pandemic. The effect is explained because there is still a strong link between the salaries of workers and retirees.
The same restriction, says Mr. Santos, weighed on security, whose spending increased 4.9% this year, in real terms, compared with 2021, with an increase of only 0.6% compared to 2019, also considering the first half of the year. For Ms. Peres, the restriction on hiring also weighed on security, which probably did not have staff personnel replaced in all states.
The areas related to investments in infrastructure also drove state expenses. Altogether, the areas of housing, sanitation, transport, and city planning reach expenses of R$25.28 billion in 2022, up 72% year-over-year and almost doubling the R$12.99 billion in 2019. The four areas together grew to 5.8% this year from 3.1% of total expenditures in 2019, keeping the comparison from January to June.
The performance reflects in part the evolution of total investments, which advanced to 6.5% from 1.9% of total spending over the same period. From 2019 to date, investments jumped to R$31.4 billion from R$8.6 billion. Compared to the previous year, with investments affected by the elections, spending almost tripled, also considering values adjusted by the IPCA.
*By Marta Watanabe — São Paulo
Source: Valor International