Lula government calls STF for Minas to pay debt immediately

The Federal Attorney General’s Office (AGU) filed an appeal, this Wednesday (23/4), against the decision of Minister Nunes Marques, of the Federal Supreme Court (STF), which granted another 90 days for the government of Minas Gerais to Gerais returns to paying the debt with the Union. In the appeal sent to the Supreme Court, the body asks the management of Romeu Zema (Novo) to return to paying the debt immediately. Today, the Minas Gerais Government’s debt to the Union is estimated at R$162 billion.

In the text, the AGU points out that the extension of the deadline for joining the Fiscal Recovery Regime (RRF), without any federative counterpart, has the “pernicious effect of granting differentiated treatment to the subnational entity, directly violating federative loyalty”. “Thus, any judicial decision that agrees with a new extension of time must include as a condition that the State starts paying more than it has actually been paying to the Union”, says an excerpt of the text.

Since the extension of debt payment in December 2023, when negotiations with the Ministry of Finance and alternative proposals to the Fiscal Recovery Regime (RRF) began to gain prominence and left aside the economic package proposed by governor Romeu Zema, the The Union claimed that any extension of the deadline should not exceed the end of May and that the decision also entailed the resumption of payments on debt installments, as if it were already under the tax recovery regime.

In the appeal presented yesterday, the AGU highlights that the decisions extended adherence to the Tax Recovery Regime, but at no point did it determine the resumption of payment of debts. In the text, the agency highlights that Minas Gerais has not repaid the debt for more than nine years, supported by court decisions that postpone payments, “harming the fiscal situation of the state of Minas Gerais”.

Union justification

The Union’s justification is based on the “principle of loyalty and federal cooperation”. According to the AGU’s argument, “it is not reasonable to grant differentiated treatment to one member state to the detriment of the others”. From this perspective, they claim that other states comply with payments, just as Minas Gerais should comply.

“This imposition of an obligation to pay appears to be legally reasonable for several reasons. Firstly, this condition observes the principle of equality, preventing Minas Gerais from receiving more beneficial treatment than other States that are regularly registered in the RRF and are fulfilling their due obligations. Furthermore, this imposition of the payment obligation is due both in fact and in law, since one of the premises for granting the deadline extensions to the State was the future approval of its tax recovery plan, considering it as if it were inserted in the Tax Recovery Regime”, says the text.

For AGU, the extension of deadlines has also contributed to the state’s financial deterioration. In the text, they point out that the debt balance has grown in “geometric proportions”, causing a situation of unsustainability.

“It is noteworthy that the benefits and flexibility extended judicially to the State have contributed to the deterioration of its financial situation by releasing it from paying the entirety of its expenses, potentially resulting in an inevitable solution of federal transfer of debts, with consequent socialization of losses together to the other States. The scenario described, therefore, allows the entity to be free from paying installments of its debt service, causing the debt balance to grow in geometric proportions, creating a situation of unsustainability”, says an excerpt from the appeal.

The body also states that despite the extension of the deadline for joining the regime, the state “has not yet approved all the laws and normative acts necessary for the approval of the RRF”. “The lack of response regarding compliance with all the sections of the aforementioned provision continues to make it impossible, as in December 2023, to approve the State’s Fiscal Recovery Regime”, reads another excerpt.

Extension at the STF

Last Friday (19/4), minister Nunes Marques decided to extend the payment of Minas Gerais’ debt to the Union for 90 days, that is, until July 20th. The decision came one day before the end of the 120-day period, granted in December 2023.

The minister claimed that “the Fiscal Recovery Plan needs to be seriously considered, so that the State of Minas Gerais does not reach a financial situation that is difficult to reverse.” He also conditioned the new extension of the deadline on an effort by the Zema government to resolve the debt.

“It concludes, therefore, that any judicial decision that agrees with a new extension of time must include as a condition that the State starts paying more than it has actually been paying to the Union’ (…). The extension of the debt situation, in this panel, must be accompanied by concrete attitudes and willingness to negotiate quickly and respectfully between the political units involved”, said the minister in the injunction.

The deadline was extended for another three months, however, the Minas Gerais government wanted the deadline to be extended by 180 days to complete adherence to the Fiscal Recovery Regime (RRF). The state management’s justification is that the shorter period could compromise public accounts, including civil servants’ salaries. The six months would also be used for the National Congress to consider the bill that deals with the renegotiation of debts with the Union, an alternative solution to the RRF.

The Zema RRF project at ALMG had its processing suspended in December last year, shortly after Nunes Marques’ first decision. The RRF was ready to be discussed in plenary, but was left aside when the president of the National Congress, senator Rodrigo Pacheco (PSD-MG), began a dialogue with President Luiz Inácio Lula da Silva (PT) for a new proposal.

It is also worth remembering that, last Friday (19/4), the president of the Minas Gerais Legislature, state deputy Tadeu Martins Leite (MDB), stated that the Legislative Assembly can resume the processing of the Tax Recovery Regime proposed by governor Romeu Zema if the federal government returns to collecting the State’s debt with the Union. The statement was made before Minister Nunes Marques’ decision was released.