In 2002, the business activity of the public administration was represented by 256 federal, state and municipal non-financial enterprises and 53 financial enterprises like the federal banks - Banco do Brasil, Banco Central do Brasil, Caixa Econômica Federal (CEF), the Brazilian Development Bank (BNDES), Banco da Amazônia and Banco do Nordeste do Brasil -, IRB-Brasil Reinsurance, the commercial and development state banks, the state saving banks and the state insurance companies.

Three financial enterprises were privatized in 2002: Banco do Estado da Amazônia, Banco do Estado da Paraíba and Banco do Estado de Goiás.

The survey on the Public Finance in Brazil also reveals that the Brazilian public administration obtained positive figures along the three administration levels in 2001.

While the state-run companies performed business activities in nine economic sectors - Mining, Manufacturing Industry, Public Utilities, Energy, Transportation, Communications, Finance, Trade and Others ¹ -, the federal companies focused in four groups only, which, altogether, generated approximately 97% of the overall revenue in 2002, according to Table 4.

Finance was the most important activity of the federal companies in 2002 (73.11%), due to the large number of federal banks.

The activity of Manufacturing Industry ranked in the second position, accounting for 14.70% of the overall revenue of the federal public enterprises. Most of its importance was due to the fact that large companies like Petrobras and Petroquisa were included in this activity.

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¹ A list of the classification of federal, state and municipal companies according to the economic activity can be found in - Regionalização das Transações do Setor Público – Atividade Empresarial do Governo, volume 2 ( 1995 a 1998 ), IBGE.

The state and municipal companies were virtually focused on four economic activities: Finance (21.54%), Energy (42.82%), Public Utilities (26.49%) and Transportation (4.50%), which accounted for approximately 96% of the overall revenue of the state and municipal companies, as showed by the percentages in Table 5.

Using the overall revenue as a measure of the relative importance of the public companies, the survey points out that the federal companies generated significantly more revenue than the group of state and municipal companies in 2001: 91.87% and 8.13%, respectively.

 

Most of the revenue generated by the companies were operational revenue, accounting for 94.26% of the overall revenue in the case of federal enterprises and for 92.64% in the case of the group of state and municipal enterprises.

Among the operational revenues, the most important were sales of goods and services (24.38%), financial intermediation (69.73%) - which was the most significant item of the overall revenue of the federal companies-, subsidies (0.15%) and non-operational revenues (5.74%).

The composition of the operational revenue of the state and municipal companies was different from that of the federal ones. While the participation of financial intermediation revenues reached only 19.05%, those from sales of goods and services reached 71.96%. This was explained by the small number of state financial institutions.

 

The role of subsidies in funding operational expenses

Transportation was less significant when measured in terms of the total revenue, accounting for only 0.27% of the overall revenue generated by companies at the three levels of the administration. However, Transportation gained relevance when the revenue was disaggregated by economic activity. This activity received more than 50% of all the subsidies paid to companies, as showed in table 12.

 

 

Expenses with personnel drop, expenses with financial intermediation rise

Operational expenses represented the most significant portion of the overall expenses, both for federal and state/municipal companies. They applied to the direct expenditures involved in the production of goods and services sold and provided by companies, though the expenses of the business activity of the public administration were classified into five groups: operational expenses; non-operational expenses; income revenue; dividends and other profit sharing; and capital expenditure.

Among the operational expenses, expenditures with personnel, which include gross salaries and wages, payroll taxes - like the corporate contribution to INSS, FGTS and private pensions - changed from 12.9% in 1997 to 3.50% of the overall expenses in 2002. The consumption of goods and services destined to production also dropped from 19.4 to 10.98%, as well as the taxes over production (from 9.85% to 5.16%). The expenditures with financial intermediation changed from 35.52% in 1997 to 66.53% in 2002.

The structure of the expenses of the state and municipal companies differed from that of the federal companies. The main reason was that the production function of the state and municipal companies was generally more labor intensive than that of the federal companies. For example, while the generation of electric energy is predominantly performed by federal companies, its distribution - which includes direct support to consumers, a labor intensive service - is provided by state and municipal companies. Other activities like Transportation and Public Utilities also require a larger number of personnel and are under the responsibility of state and municipal companies.

 

Downturn in 2002 influences outcomes of state-run companies

The operational outcome of the business activity of the federal administration, resulting from the difference between the operational revenues and expenses, registered a positive value (6.09%) for the operational outcome indicator and a slight negative value (-0.44%) for the funding need.

The state and municipal companies recorded an operational outcome of 20.56% and a funding need of -10.41%. Funding capacity or need is an indicator of financial status of companies wider than the operational outcome, as it takes into account all the revenues and expenses, including the financial ones.

In 2002, the outcomes of the federal companies, as well as of the state and municipal ones, were influenced by the national downturn and also by the negative numbers of the Central Bank in the case of the federal companies.

The analysis of these indicators for each activity performed by the federal companies showed that four activities – Public Utilities (-303.13%), Energy (-16.60%), Transportation (-32.84%), Finance (-0.30%) and Others (-17.34%) - reported the need of additional resources to fund their expenses, not only capital expenditures but also non-operational expenses (financial above all) and even operational expenses.

On the other hand, the funding capacity registered in the activities of Mining and Quarrying (46.15%), Manufacturing Industry (2.31%), Communication (19.31%), and Trade (6.64%) was virtually sufficient to offset the negative indicators, once the overall negative outcome was only -0.44%.

If we consider the indicators of funding need, one can say that the aggregated impact of  federal companies in the economy was virtually null, neither expansionist nor restrictive.

The state and municipal companies recorded a positive operational outcome in nearly all the activities. However, the large majority of them posted a negative outcome when the funding need was considered. The change from a global positive operational outcome of 20.56% to a funding need of approximately -10.41% was mainly due to the financial expenses, which increased as a result of the rise of the interest rate that year.

 

Investments of federal companies in whole economy falls from 8.10% to 5.70%

Concerning the participation of the Gross Fixed Capital Formation - GCFC of the public enterprises in the economy, table 11 shows that the weight of the state and municipal companies was smaller than that of the federal ones, due to the size of some federal companies like Petrobras and the producers of electricity. In percentage terms, the investments of the federal companies represented approximately 5.70% of the overall GCFC of the economy in 2002, against 3.28% of the state and municipal companies_.

  

Brazilian Public Administration achieves positive numbers in the three administration levels in 2001

In 2001, the federal surplus was of 1.61% of the GDP, a total of R$ 18.0 billion. The primary result of the state administrations grew R$ 3.3 billion in 2001, adding up to R$ 7.5 billion, whereas the municipal administrations improved their primary surplus that year, reaching R$ 5.6 billion or 0.50% of the GDP.

One year after the enactment of the Fiscal Responsibility Law (FRL or Complementary Law no 101, from May 4, 2000), which limited the constitutional percentage of the expenses of states and municipalities, the increase in the participation of the states and municipalities in the global primary result reassured the role of the FRL. In addition, the Tax Recovery Program - REFIS was also responsible for increasing the tax collection from 1999 onwards, both for the collection of contributions and for the collection of taxes by the Federal Revenue. (Annual Report 2001, Bulletin of the Central Bank of Brazil)

In 2001, the surplus was of 1.61% of the GDP, a total of R$ 18.0 billion. Nevertheless, this result was not enough to fund the net interest expenses, resulting in a fiscal deficit of R$ -1.3 billion, or -0.12% of the GDP (Table 3).

The increase of 16.51% in the tax revenue was due to the changes in the COFINS in the sectors of fuels and cars (increase of R$ 7.0 billion); to the larger period in which the CPMF was charged with the rate of 0.38% (more R$ 2.8 billion) and to the increase of R$ 10.0 billion in the collection of the withholding income tax.

The amount collected in the form of contributions to INSS, PIS-PASEP and FGTS increased R$ 11.0 billion over 2000. According to the Ministry of Social Security, the nominal increase of 12.5% in the collection of INSS in 2001 was the result of an improvement in the collection system, of the recovery of social security credits and of the expansion of the formal employment, which rose in 2001.

 

Primary expenses also rise, though less than revenue

Primary expenses (Table 1) also recorded a significant increase (R$ 34.4 billion) in 2001, though less than the revenue. The increase in the expenses of the federal administration was mainly due to the increase in the expenses with transfers of social assistance and social security, as well as in the expenses with transfers to other levels of government.

The deficit between the social security contributions to INSS and the payment of retirements, pensions and social assistance benefits by INSS was of R$ 15.6 billion in 2001, which represented an increase of R$ 3.9 billion over 2000.

The expenses with intergovernmental transfers, i.e., the transfer of resources from the federal administration to states and municipalities rose 20.22%, changing from R$ 58.5 billion in 2000 to R$ 70.3 billion in 2001.

The primary expenses of the federal administration added up to R$ 281.3 billion in 2001 against a primary revenue of R$ 299.4 billion, resulting in a primary surplus of R$ 18.0 billion, the equivalent to 1.61% of the GDP. In 2000, the primary surplus of the federal administration was R$ 16.6 billion, i.e., 1.51% of the GDP (Tables 2 and 3).

Despite the increase of the primary surplus, the fiscal result of the federal administration in 2001 was negative: a deficit of 0.12% of the GDP, due to the expenses with payment of interest. As a result, the primary surplus of the federal administration could not assure a fiscal surplus.

The financial revenue of the public administration added up to R$ 329.7 billion in 2001, mostly coming from credit operations of the federal administration, which added up to R$ 274.1 billion in 2001. This fund is raised either by placing bonds or taking out loans to fund the excess of primary expenses or to fund past debts and their charges (interest, currency exchange, etc.).

On the other hand, the financial expenses added up to R$ 356.0 billion. Among them, the expenses with interest of the public debt reached R$ 60.2 billion in 2001, which represented an increase of R$ 12.5 billion over 2000.

The growth of the expenses with interest was due to the increase of the Selic interest rate, which made the expenses with interest exceed by R$ 19.4 billion the revenues with interest (remuneration of the Treasury availability account, remuneration of bank deposits, income security interest, other revenues from financial assets, etc.) of the federal administration. This result exceeded by R$ 1.3 billion the primary surplus generated by the federal administration, resulting in a fiscal deficit.

 

State administrations get good fiscal performance in 2001

In 2001, the state administrations produced the best fiscal performance in the period under analysis (1998 to 2001), recording fiscal and primary surpluses. The recovery of the state accounts had already been registered in 2000. The improvement was mainly due to the Debt Renegotiation Agreements of the state administrations, as well as to the Tax Recovery Program - REFIS. Through REFIS, the states cancel fines and interest on arrears and parcel out overdue taxes of companies that settle their debt with the state tax offices.

On the revenue side, the overall tax collected by the state administrations increased 15.32% in 2001. This result was mainly due to the increase of 14.35% in the collection of ICMS, which generated an additional revenue of R$ 11.7 billion in 2001.

The revenues coming from intergovernmental transfers - which include the transfer of resources collected by the federal administration shared with the states according to the Constitution -, as well as the transfer of resources from SUS and those coming from cooperation covenants between different levels of the administration increased by 20.52% in 2001, accounting for an increase of R$ 6.3 billion in the resources of the state treasuries.

In 2001, the contributions to the social security of public servants rose by R$ 0.9 billion, reaching R$ 7.0 billion. This increase was the result of the reform of the state social security system, through the creation of social security funds to afford it.

The increase in the primary revenues was partly offset by the increase in the primary expenses. The costing expenses grew 12.67% in 2001, which represented an increase of R$ 8.4 billion, consisting of R$ 5.6 billion of expenses with personnel and of R$ 2.8 billion of acquisition of goods and services (Table 6). In 2001, the expenses with investments rose by 35.20% over 2000, adding up to R$ 11.3 billion.

The expenses with intergovernmental transfers grew by 15.71% in 2001, leveraged by the increased collection of ICMS and IPVA; the primary expenses of the state administrations rose by R$ 17.9 billion, adding up to R$ 155.0 billion in 2001.

As the primary revenues increased R$ 21.2 billion in 2001, the primary result of the state administrations grew R$ 3.3 billion, adding up to R$ 7.5 billion.

The primary surplus of R$ 7.5 billion, generated by the state administrations in 2001, was higher than the payment of the net expenses with interest (interest expenses - revenues) recorded in the budgetary balances of the state administrations.

By improving the primary surplus, the state administrations reduced the need to raise resources in the market to roll over state securities.

 

Municipal administrations improve primary surplus in 2001

The municipal administrations improved their primary surplus in 2001, reaching the result of R$ 5.6 billion or 0.50% of the GDP.

The increased contribution of the municipal administrations to the fiscal adjustment was possible due to the nominal increase of 16.1% or R$ 13.2 billion in their primary revenues. Most of the increase in the municipal primary revenue was explained by the increase in the transfers received from the other levels of the administration (federal and state). The revenues coming from intergovernmental transfers, which are the main source of revenue of the municipal administrations, rose by R$ 10.4 billion. This was due to the increased tax collection of the federal and state administrations, as well as to the growing formalization of covenants between the municipalities and the other administration levels to provide public services to local communities (decentralized provision of public services).

The remaining part of the increased municipal primary revenue was due to the increased collection of municipal taxes (R$ 2.6 billion). Among them, the highlights were ISS and IPTU which, altogether, accounted for the growth of R$ 1.4 billion in the taxes collected by the municipalities (Table 8).

The increase of the primary result of the municipal administrations was the result of a relatively lower increase of their primary expenses, which expanded by 12.1% in 2001. Among the primary expenses, the highlights were the growth of the expenditures with personnel by 24.05%, of the expenditures with acquisition of goods and services by 8.36% and of the expenditures with transfers of social assistance and social security by 15.82%.

As to the primary expenses that dropped in 2001, the highlights were the expenditures with investments, which declined by 6.19%, the expenditures with subsidies (-7.42%) and the expenditures with other transfers, which include social subsidies to non-profit institutions (sports clubs, associations, etc.) and capital subsidies to public companies, which dropped by 13.29%.

As a consequence, the primary expenses expanded by R$ 9.7 billion, whereas the primary revenue expanded by R$ 13.2 billion, producing an increase of R$ 3.5 billion in the primary surplus of the municipal administrations in 2001.

Despite the increase of R$ 0.5 billion in the expenditures with interest by the municipal administrations, the expansion of R$ 3.5 billion in the primary surplus more than offset this increase. As a result, the fiscal surplus of the municipal administrations was higher than that of 2000, reaching R$ 5.3 billion (Table 7).

 

Consolidated Administration (Federal, State and Municipal)

As showed in the analysis of the federal, state and municipal administrations (Table 9), the fiscal adjustments made in 2001 turned into primary and fiscal surpluses of the consolidated administration of, respectively, 2.79% and 0.61% of the GDP.

 The currency depreciation and the increase of the referential interest rate in 2000 caused the net expenses with interest of the consolidated administration to grow by approximately R$ 8.2 billion.

 The behavior of the currency exchange and interest rates negatively affected the public accounts by rising the expenditures with interest of the consolidated administration in R$ 14.5 billion, a change from R$ 56.7 billion in 2000 to R$ 71.2 billion in 2001. Nevertheless, the increase in the expenditures with interest was partly offset by the growth of R$ 6.2 billion in the revenues with interest, which were of approximately R$ 46.8 billion in 2001 against R$ 40.6 billion in 2000.

The increase in the revenue with interest was due to the investment of the availability accounts of the federal, state and municipal administrations - consequence of the gap between tax collection and payment of expenses - in the financial market at market rates. As a result, part of the negative effect of the increase of the interest rate is offset by the growth of the revenue with interest of the public treasuries. This process is particularly significant for the federal administration, whose availability accounts are remunerated by the Central Bank at rates similar to those paid by the Treasury to the financial market for its federal securities.