Understanding Government Revenue & Credit Operations in Brazil
Government Revenue and Credit Operations in Brazil
Credit Operations
The Ministry of Finance (MF) verifies compliance with limits and conditions for obtaining loans from government entities. This includes:
- Inclusion in the budget or additional credit resources from the operation, within limits and conditions established by the Federal Senate.
- Specific authorization from the Senate for foreign credit operations.
- The Senate can return the Treasury’s request for authorization if the documentation for a credit operation is not compliant with established resolutions.
AROs (Additional Budgetary Resources)
AROs are off-budget, settled within the contract year, and do not require specific legislation, only general authorization in the annual budget.
Contracts Involving Credit Guarantees and Warranties of the Union
Requirements include:
- Offering indemnity equal to or greater than the guarantee being granted.
- Borrower’s debt compliance (no outstanding debts for a period of not less than 30 days and no renegotiated debts).
- Counter-guarantees are not required for organizations and entities within the state, Federal District, or municipality.
Requests should include:
- Explanatory memorandum to the Minister of Finance.
- Opinion of the Attorney General of the National Treasury.
- Documentation from the National Treasury and Ministry of Finance.
Revenue Budget
Budgetary Revenue
Should be included in the budget and includes values derived from lending operations authorized by law (LOA).
Extrabudgetary Revenue
These are compensatory entries and should not be considered in the budget. Examples include third-party deposits, occasional and transient securities.
Types of Revenue
Current Revenue
Includes tax revenues, contributions, property income, agricultural, industrial, and other service revenues, and funds received from other public or private entities.
Capital Revenue
Arises from incurred debts (internal and external credit operations), conversion of assets into cash (sale of movable and immovable assets), and funds received from other public or private entities designated for capital expenditure and budget surplus.
Tax Revenue
Results from the government’s taxing power.
- Tax: A taxable event or situation, independent of any specific state activity.
- Rate: Generated from the exercise of police power or the actual or potential use of specific and divisible public services provided to taxpayers.
- Contribution to Improvement: Designed to cover the cost of public works that result in real estate valuation.
Loans
The Ministry of Finance (MF) verifies compliance with limits and conditions for obtaining loans, including:
- Inclusion in the budget or additional credit resources.
- Limits and conditions established by the Senate.
- Specific Senate authorization for foreign loans.
- The Senate can return requests with non-compliant documentation.
Credit Operations Subject to Senate Approval
- Foreign credit resulting from agreements for goods and services abroad.
- Issuance of public debt.
AROs
Off-budget, settled within the contract year, requiring only general authorization in the annual budget.
Operations Involving Credit Guarantees and Warranties of the Union
- Requires an indemnity offer equal to or greater than the guarantee.
- Borrower compliance (no outstanding debts over 30 days, no renegotiated debts).
Requests should include an explanatory memorandum to the Minister of Finance, an opinion from the Attorney General of the National Treasury, and documentation from the National Treasury and Ministry of Finance.
Prohibited Actions
- Hiring a credit operation within 120 days of the end of the term of the Chief Executive of the State, Federal District, or Municipality.
- Hiring credit by a delinquent borrower.
Rule of Thumb
Credit transaction proceeds cannot exceed capital expenditures, except for those from additional credits with a specific purpose and approved by the Legislature by an absolute majority. This aims to curb debt issuance for financing current spending and prevent borrowing to cover personnel costs, interest, and expenses.
Sale of Goods
Cannot be used for financing current expenditures to prevent the squandering of public assets. Exceptions include social security expenditures authorized by law.
Codification of Revenue
Revenue is codified based on:
- Economic Category: Current or capital revenue.
- Source: Origin of public resources.
- Subsource: Taxes and contributions for improvement.
- Rubric: Details the kind of revenue (e.g., taxes and equity income).
- Point: Further details the specific revenue source.