BC rejects incorporation of forgotten money in banks to meet fiscal target

By Marcela Ayres

BRASILIA (Reuters) – Brazil’s central bank said in a statement that the government’s collection of funds forgotten in financial institutions cannot be classified as primary revenue, marking a setback in the government’s efforts to use these balances to meet this year’s fiscal target.

After the publication of the technical note, Finance Minister Fernando Haddad signaled this Wednesday that he agrees with the monetary authority’s position, stating that the accounting of revenues must respect the BC’s understanding.

In a bill approved by the Senate, which still awaits approval by the Chamber of Deputies, the allocation of these resources to the National Treasury was proposed by the government leader in the House, Senator Jaques Wagner (PT-BA), as one of the measures to compensate for revenue losses with the payroll tax exemption for 17 sectors and small municipalities.

Treasury Secretary Rogério Ceron recently estimated that these resources could reach around 8 billion reais.

In a technical note sent to lawmakers, which Reuters had access to, the Central Bank states that incorporating these balances into government accounts would constitute a transfer of financial assets from the private sector to the public sector without a standard transaction between the two sectors.

“The appropriation of judicial deposits involving private entities falls within the definition of equity adjustment. In this case, it is an operation that did not result from an ordinary economic transaction between the public and private sectors, and therefore does not resemble the receipt of regular public revenues,” the note added.

The bill explicitly proposes that “the remaining unclaimed balances with depository institutions will be transferred to the Union and will be appropriated by the National Treasury as primary budget revenue for all purposes of fiscal statistics and the calculation of the primary result”.

In the note, the BC recommended the total rejection of this part of the proposal, arguing that this would force the authorities to register a primary result in clear contradiction with its statistical methodology.

This year’s fiscal target is a zero primary deficit, with a tolerance margin of 0.25% of Gross Domestic Product (GDP), which means that the government can register a deficit close to R$29 billion and still meet the target. The Central Bank’s methodology is used to verify compliance with the target.

According to the note, other compensatory measures in the project would count as primary revenue, such as the transfer of judicial deposits from Caixa Econômica Federal, funds and public bodies to the Treasury.

In an interview with the press, Haddad said that the Treasury’s initial proposal to compensate for the tax relief — an increase in corporate taxation — was not accepted by the Senate, which opted to adopt alternative measures, including the withdrawal of funds forgotten in banks.

“The accounting of the primary result is done by the Central Bank, so we will have to make the compensation in the manner established by the Central Bank. What goes into the account and what does not go into the account has to be evaluated after approval,” he said.

“The Senate chose the path of compensation, but accounting will have to respect the decision of the Supreme Court (Federal Court),” he added, in reference to the Court’s decision that defined that the payroll tax relief will only be valid if sources of compensation are created for the loss of revenue generated by the benefit.

(With additional reporting by Bernardo Caram)