March 26, 2019

Subsidies and Tax Expenditures in Brazil

Cepal

Mansueto AlmeidaSecretary of Brazilian National Treasury

2

Summary

1. General Overview

2. Tax Expenditures

1. Subsidies – BNDES and Student Loans

4. Agriculture

5. Measures

1

2

3

4

5

3

1 Cenário MacroeconômicoSubsidies and Tax Expeditures in Brazil: General Overview

Source: Ministry of the Economy of Brazil

1

1.0 1.3 1.51.0 0.6 0.8 0.7 0.7

1.2 1.2 1.4 1.12.1 1.8

1.3

2.0 1.82.0 2.7

2.42.9 3.5 3.5

3.5 3.84.2 4.5

4.54.2

4.13.0 3.13.5 3.7

3.13.7

4.2 4.24.7 4.9

5.6 5.5

6.76.1

5.4

Subsidies (implicit and explicit) Tax Expenditures Series3

In % of GDP

4

1. Tax Expenditures – Lower creation of programs, with reduced fiscal impact 2

Source: Brazil ian National Treasury

32 32

92

60

51

125

14

8

1312

29

23

30

53

6

1

0

5

10

15

20

25

30

35

40

0

10

20

30

40

50

60

70

80

90

100

2010 2011 2012 2013 2014 2015 2016 2017 2018

R$

bill

ion

Nu

mb

er

of

ne

w p

rogr

ams

Forecasted Tax Expenditures of New Programs

Number of new programs 4-year cumulated impact of new programs

5

1. Tax Expenditures – Comparison to Latin America2

Source: Centro Interamericano de Administração Tributária (CIAT)

Tax Expenditures, as % of GDP

Country Latest Data (t-2) (t-1) t

Colombia 2014 - 0,60% 0,70%

Bolivia 2013 1,00% 1,20% 1,30%

Paraguay 2012 1,90% 1,70% 1,70%

Peru 2016 2,20% 2,30% 2,20%

Guatemala 2015 2,60% 2,50% 2,50%

Panama 2013 - - 2,70%

Argentina 2016 2,50% 2,90% 2,80%

Mexico 2016 3,30% 2,90% 2,90%

El Salvador 2013 3,10% 2,90% 3,00%

Average - 3,50% 3,60% 3,50%

Ecuador 2014 4,70% 4,70% 4,10%

Chile 2016 4,30% 4,50% 4,30%

Brazil 2016 4,50% 4,80% 4,40%

Costa Rica 2016 5,10% 5,20% 5,10%

Nicaragua 4,80% 5,00% 5,50%

Uruguay 2014 6,60% 6,40% 6,30%

Dominic Republic 2016 - 6,80% 6,60%

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1. Reduction in Subsidies – Student Loans3

* Forecast

• FIES – government program of student loans – was

remodeled to assure its sustainability and limit costs,

which were on a unsustainable path, threatening the

continuity of this important public policy

Primary Balance Impact of FIES – 2010 to 2017 –R$ Billion – Current prices

Cumulated primary balance impact of FIESfrom 2010 to 2017 amounted R$ 36 billion

!

Source: Brazil ian National Treasury

0.9

1.6

3.3

4.8

6.3

5.8

7.0

6.2

2.83.3

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*

7

1 Cenário MacroeconômicoSubsidies – Evolution of subsidies to BNDES3

Source: Ministry of the Economy of Brazil

Outstanding loans to BNDES Annual Subsidies to BNDES(R$ billion of 2018)

312 14 16 15 12 12

42

142

251

309

374

426

505 524

440416

307

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

200120022003200420052006200720082009201020112012201320142015201620172018

% o

f G

DP

R$ billion % of GDP

0.4

4.7

8.06.7

8.310.3

11.910.4

6.6

4.0

7.8

13.8

16.217.8

14.5

27.4

23.0

31.9

16.1

5.0

0.0

8.2

18.5

24.2 24.5 22.8

37.7

34.9

42.3

22.7

9.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Explicit Implicit Total

8

1 Cenário MacroeconômicoSubsidies – Frontloading of BNDES payment schedules to Treasury3

Source: COGEF/Ministry of Economics

Duration Before Renegotiation: 21 yearsDuration After Renegotiation: 9 years

0

5

10

15

20

25

Schedule of Payments from BNDES to National Treasury, in Present Value (US$ billion)

Before Renegotiation After Renegotiation

9

1 Cenário Macroeconômico

3.7 5.1 4.8 6.0 5.48.7

5.0 5.2 4.2 4.4

3.5

4.6 3.9

8.111.6

11.6

4.56.2

5.5 5.67.3

9.68.6

14.1

17.0

20.3

9.5

11.49.7 9.9

2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

Subsidies to Family Agriculture Subsidies to Business Agriculture

R$ bilhões

Agriculture – Reduction in Subsidies 4

Source: COGEF/Ministry of Economics

Annual Subsidies to Agriculture(in R$ billion)

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1 Cenário MacroeconômicoPublic Policies Evaluation in Brazil• The Interministerial Governance Comitee

(CIG) is formed by Ministry of Economics,Chief of Staff e Ministry of Compliance.

• CIG advises the President with governancepolicies in the Federal Administration.

• Brazilian institucional background for publicpolicies evaluation comprises alreadyexistent units in government bureocracy.These units plan the schedule of publicpolicies evaluation, execute thisassessment, suggest the revision ofpolicies, including changes in the legalframework, and spread the culture ofpublic policies evaluation, both ex ante andex post.

Source: SECAP/Ministry of Economics

CMAP -Internal Regulation nº 102/2016

CIG - Decree nº 9.588/2018

CMAP - Internal Regulation . nº 102/2016

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Chronology of the instituinalization ofPublic Policy Assessments in Brazil

Evaluation Guide Ex Ante and Ex Post

Strategic Policies Evaluation

Council for Evaluation

andMonitorig

Sectoral Policies Evaluation

SectoralOrganisms

Training Programs

GovernmentSchools

Interministerial Governance Comitee

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1 Cenário Macroeconômico

CMAP Council for Evalutation and

Monitoring, with members ofMinistry of Economy, Ministry ofState and Ministry of Compliance

CMAG Members of the Ministry of the

Economy, Office of the President and Ministry of

Compliancy

CMASMembers of the Ministry of the

Economy, Office of the President and Ministry of

Compliancy

• Approves the schedule of evaluation

• Notify CIG with agenda and results

• Proposes changes in the normative

Evaluates public policies financedby federal sources or federal funds

Evaluate public policies financed byfederal subsidies (tax breaks, implicitand explicit subsidies

Composition of the Council of Evaluation and Monitoring - CMAP5

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1 Cenário Macroeconômico

• The Budgetary Guidelines Law (LDO - 2019) has a goal of stablishing a cap of 2% of GDP for Tax Expenditures in tenyears.

• For comparison, in 2017 it reached 4,1% of GDP.

• According to the §§ 3º e 4º of article 21 of LDO 2019:

Source: SECAP/Ministry of Economics

Revision of Tax Expenditures and subsidies5

§ 3º O Chefe do Poder Executivo encaminhará ao Congresso Nacional plano de revisão de despesas e receitas, inclusivede incentivos ou benefícios de natureza financeira, tributária ou creditícia, para o período de 2019 a 2022, acompanhadodas correspondentes proposições legislativas e das estimativas dos respectivos impactos financeiros anuais.

§ 4º O plano de que trata o § 3º e as correspondentes proposições legislativas: (...)III - no que tange às receitas:a) priorizarão medidas voltadas à redução de renúncia e ao aumento de receita, ao combate à sonegação, à

progressividade tributária e à recuperação de créditos tributários; eb) estabelecerão, em relação aos benefícios tributários:1. prazo de vigência para cada benefício; e2. cronograma de redução de cada benefício, de modo que a renúncia total da receita, no prazo de 10 (dez) anos, não

ultrapasse 2% (dois por cento) do produto interno bruto.”