The tip of the iceberg
The Bolsonaro administration's proposal to limit the Federal Government from paying out court-ordered payments in order to use the surplus resources to finance the new Renda Cidadã cash-transfer program had only one merit: it attracted some attention to an expense that keeps growing. Federal spending on payments related to court sentences has increased at an accelerated rate in recent years and, what is worse, there are signs that the situation may get worse in the future. In other words, current expenses may just be the tip of the iceberg.
Whoever is curious enough to read the fiscal risks annex that accompanies the 2021 Budget Guidelines bill (PLDO) will see that the total value of court decisions against the federal government - including both cases that present a possible risk and a probable risk - rose from R$1.6 trillion in 2018 to R$2.2 trillion in 2019 - an increase of 33.9%. The annex shows that this increase was the result of rapid growth in lawsuits involving probable risks during the period, which rose to R$664.1 billion in 2019 from R$117.6 billion in 2018 - an increase of 410%.
The PLDO annex explains that the Judiciary is responsible for processing and hearing these legal cases against the federal government. In this sense, the "judicial payment" event can be classified as a risk "insofar as it is an uncertain event in the future." The Attorney General's Office (AGU) is responsible for working with judicial bodies to obtain decisions that are favorable to the Public Treasury, and so seek to avoid making judicial payments, as is explained in the annex.
The lawsuits are classified in terms of the likelihood of losses to public coffers: probable, possible and remote. The Federal Court of Accounts (TCU) determined that lawsuits with a "probable" risk level must result in a provision, to be recognized in financial statements prepared by the National Treasury Secretariat.
The PLDO annex only addresses "possible" risks, which showed a slight increase in the last year. In December 2019 the potential impact of lawsuits rose to R$1.54 trillion, representing an increase of 0.7% from 2018.
What is dramatic, in terms of the federal government's finances, is the staggering growth of probable risks, because in the near future these will be transformed into budgetary expenses that need to be paid.
The PLDO annex says the significant increase in "probable" risk lawsuits is due to changes in the criteria for classifying lawsuit risk, following...
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