• Fiscal Pedaling
    Brazilian Artificial Accounts

    By Gabriel Quintanilha

    18-04-2016

    Currently in Brazil the most widely discussed topic in political circles is the "fiscal pedaling" practiced by the federal government during the year of 2014, which was proven and still practiced in the year of 2015.

    To situate the reader, the practice was a way to generate an artificial result in the public accounts of the Brazilian federal government, with the delay in transfers to banks related to benefit payments such as family allowance and unemployment insurance, for example.

    Public banks paid the benefits and the federal government did not perform the respective pass through, characterizing a credit transaction, a kind of "overdraft", generating a surplus that actually did not exist, duping the market with a virtual reality and violating Fiscal Responsibility law.

    The Federal Court of Accounts (TCU - Tribunal de Contas da União), which has the constitutional power to exercise external control of federal government accounts, analyzed this case recognizing the existence of "tax pedaling" and issued a unanimous opinion reproving it, which had not occurred in Brazil since 1937.

    According to the report, there was artificiality in the public accounts amounting up to R$ 106 billion in 2014, the amount of R$ 40 billion was referent to the delay in transfers and R$ 28 billion in expenses that should have been contingent and weren't.

    The irregularity is evident, by avoiding making the transfers to the banks, the government has inflated its accounts with money that was not owned, featuring a loan, which is prohibited by the Fiscal Responsibility Law, in article 36. That is, the Union has held loans with financial institutions controlled by it.

    The TCU judge's opinion is not definitive, leaving the Congress, by Constitutional assignment, to decide on the matters concerning the accounts, reproaching them or not.

    The approval of the accounts by Congress after the TCU's technical opinion is highly unlikely, but it should be noted that it has become a political decision and it can take years to be pronounced.

    However, it is unquestionable that the rejection of the accounts by the TCU can have negative effects on the market, driving away investors and increasing distrust of the credit rating agencies.

    The accountability of the public official may be given in various spheres, such as the practice of a crime typified in art. 359 of the Brazilian Criminal Code (credit transaction of hiring), administrative misconduct or even criminal liability that may lead to impeachment.

    It should be stressed that there is a gap in the Constitution, strengthening the argument that the failure of the 2014 account could not lead to a crime liability due to the beginning of the new presidential mandate in 2015. However, there is evidence that the "pedaling" continued in the year of 2015.

    As you can see, it is not for lack of legal standards that accountability shouldn't occur, but even with the rejection of the accounts by the TCU, the decision should be taken by the Congress, that must make the public accounts political analysis.

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  • The information provided in this article is for general information purposes only. The information is not intended to be comprehensive or to include advice on which you may rely. You should always consult a suitably qualified professional on any specific matter.

Gabriel Quintanilha

Gabriel Quintanilha is based in Rio de Janeiro. Gabriel has been an attorney at law since 2006. He is also Professor of Tax Law at Fundação Getulio Vargas – FGV and IBMEC. Author of books and articles published in Brazil.

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