Governments must follow better international standards for creating state lotteries
Photo: Caixa Econômica Federal / Divulgação

After the decision of the Federal Supreme Court (STF) in 2020, the lottery is no longer an exclusive activity of the Union. Since then, states and municipalities are authorized to resume or create their own games. Therefore, several governors are working to activate state lotteries in order to increase the resources destined to the public coffers.

In an article recently published in Folha de São Paulo, former Secretary of Evaluation, Planning, Energy and Lottery (Secap) Gustavo Guimarães stressed that these opportunities to leverage new revenues will only be well used if state governments follow the best international standards.

In addition, Guimarães pointed out that it is the responsibility of the Union to create the state lottery law to establish norms and standards for the practice. All the details of the article can be seen below.

State lotteries: are you playing with luck?

In September 2020, the Federal Supreme Court allowed states to start or expand the exploitation of lottery services in their territories — opening up opportunities to leverage new revenues. This opportunity will only be well used if it follows the best international practices.

According to the law, the amount collected (R) by a lottery is divided into three parts: prize money (P); taxes (T); and remuneration of the operating company (O) — such that R = P + T + O. The government benefits from the good results, as its share “T” grows when “R” grows. Thus, he is interested in the good performance of lottery products.

The collection of lotteries in Brazil is around 0.2% of GDP, on average, while in similar countries it reaches 1%. There is great potential for increasing revenue. The state of São Paulo can raise up to an additional R$2.5 billion annually.

However, neither São Paulo nor the other states that have already started implementing or updating the legal framework, such as Maranhão, Minas Gerais, Rio de Janeiro and the Federal District, are following international best practices.

In Europe, the USA and the federal government (law 13.756/2018), the distribution of the collected (R) is defined by law. At the very least, they should define the government’s percentage share. This practice is essential for the legal security of the operator (when planning investments), important for the bettor to know in advance the expected return and, above all, fundamental for the government to provide predictability to the revenue that will finance its public policies. It so happens that the states are proposing their laws so that it will be up to the governments to define, a posteriori, the participation (%) of each party.

As an example, law 17.386/2021 of São Paulo, with regard to lotteries, is laconic: “The Executive Power is authorized to establish and operate […] the State Lottery of São Paulo, and must use the net result obtained in the cost of actions aimed at social assistance and the reduction of social vulnerability in the State”. These “blank checks” to the State Executive may be unconstitutional due to the fact that the “T” percentage is considered a tax rate (even if voluntary). Even the STF’s decision is clear in guaranteeing states to explore lotteries, provided that “the Union’s private competence to legislate on the subject is observed”.

For these state laws to be viable, they would have to, via infralegal regulation, maintain exactly the percentages of the federal law. However, if that were the case, it would suffice to replicate such percentages in state legislation, but this is not what has happened in states that have already presented their models.

The absence of legal parameters and the discretion of state executives to define the percentage of participation of each party by decree or ordinance, in addition to harming predictability, transparency and legal certainty, opens space for “regulatory” and not “market” competition. , as we have seen before in the well-known fiscal war of Brazilian federalism. Finally, it can be challenged by the Union, as a legislator and as a competitor in the lottery operation.

However, this delay in defining the percentages may have its origins in federal inertia or slowness. Today, we do not have clear criteria for exploration by the states, as the entire framework was built using the exclusive federal model. It is up to the Union to edit the state lottery law to define the rules and parameters, including the aforementioned percentages. This issue is urgent at the risk of States preempting with wrong decisions or with no practical effect, in addition to creating more legal imbroglios to federalism.

It is also important that the Courts of Auditors and the State Public Prosecutors pay attention to the processes of implantation of lotteries in the study phase, in order for the public interest to prevail and the market to be able to expand towards its potential, generating jobs, income and collection.

Instead of following mature lottery markets, or demanding national legislation with the “rules of the game”, state governments are rushing to create yet another jabuticaba. The STF has opened up new revenue opportunities, and the States are playing with their luck.