Haddad defends opening the “black box” of tax breaks

The Minister of Finance, Fernando Haddad, stated that it is necessary to “open the black box” of fiscal waivers and discuss with society where public resources in Brazil are going. According to the minister, the tax reform is a necessary measure to increase revenue and contribute to the reduction of the public accounts deficit, without jeopardizing the provision of public services to citizens.

Haddad participated, this Thursday (27), in the plenary of the Federal Senate, of the debating session on interest, inflation and economic growth, requested by the President of the Senate, Rodrigo Pacheco (PSD-MG). In addition to public authorities, the event brings together representatives of entities in the productive sector.

“We are talking about almost BRL 500 billion explicit in the tax waiver budget piece and another BRL 100 billion that are not in the budget law because they are taxes, which are not even considered for tax purposes due to the laxity of our legislation with practices that are absolutely inadequate and unacceptable in the developed world. So, is there a need to talk about cost cutting? In our opinion, yes, particularly tax spending,” she said.

For the minister, the Brazilian tax system is responsible for a large part of the inefficiency of the economy. “We don’t have productivity gains, because the most efficient producers are not always able to resist unfair competition, and you lose competitiveness, you keep pushing out of the market those who produce better, more efficiently, with social commitment, with fulfillment of their obligations. So tax reform is not a side issue either,” Haddad said.

Therefore, the government prioritized tax reform, said the minister. “This is an old demand from liberal and developmentalist (economists), a look focused on the issue of efficiency, the disarray that the Brazilian tax system has become, an absolutely ungovernable patchwork quilt, with endless litigation, especially at the state level. ”, he added.

Haddad mentioned a lawsuit in court over the withdrawal of ICMS (Tax on Circulation of Goods and Services) from the PIS/Cofins (Social Integration Program/Contribution to Financing Social Security) calculation base, which suppressed approximately R$ 100 billion from the federal government’s primary revenues. Another decision was lifetime review of pensions paid by the National Institute of Social Security (INSS), which could impact federal coffers by more than R$360 million.

“What was boasted of savings with that social security reform, at around R$ 1 trillion in 10 years, evaporated with two measures by the Judiciary”, said Haddad, commenting on the severity of distributional conflicts in Brazil. “We are not going to solve the social problems and the urgent need for investment in our productive matrix without recovering the capacity of the Brazilian State to invest again”, he added.

According to Haddad, due to the electoral process, the previous government promoted, in 2022, an expenditure of BRL 300 million, between waiving revenues and increasing expenses. The Proposed Amendment to the Constitution (PEC) of the Transition guaranteed resources for the continuity of social programs, and a new fiscal framework was sent to Congress to replace the spending cap.

For the minister, the new rule is considered healthier from the point of view of the rigidity of public accounts, “but giving conditions for foreign and national investors to believe in the enormous potential of the Brazilian economy, which has simply been 10 years old with growth far below its effective potential.

Monetary policy

In this sense, the level of the Selic rate (basic interest rates in the economy) is a reason for Divergence between the federal government and the Central Bank (BC). When the Central Bank’s Monetary Policy Committee (Copom) raises the basic interest rate, the purpose is to contain heated demand and reduce inflation, and this affects prices because higher interest rates make credit more expensive and stimulate savings. Thus, higher rates can also make it harder for the economy to expand.

Selic is at its highest level since January 2017, when it was also at 13.75% per annum. Last month, for the fifth time in a row, the Central Bank did not change the rate, which has remained at that level since August last year.

The minister pointed out, however, that fiscal (which takes care of revenue and public spending) and monetary (interest rate to hold down inflation) policies start from the same gear. “If the economy continues to slow down for reasons related to monetary policy, we will have fiscal problems because the collection will be impacted”, he said.

The Senate session was also attended by the BC President Roberto Campos Netowhich defended the technical decisions of the municipality.

For Minister Fernando Haddad, the government is doing its part, including taking unpopular measures, to clean up public accounts and allow for a longer planning horizon and the country’s sustainable growth.

In the same sense, the Minister of Planning and Budget, Simone Tebet, pointed out that there is no contradiction between the Central Bank’s view, on the relationship between interest rates and inflation, and that of the federal government, on the relationship between interest rates and the economic growth.

“But the Central Bank also cannot consider that its actions, which are technical, but also interfere in politics, especially the its communiqués and its minutes“, he said. For Simone Tebet, one cannot really neglect inflation, as it is the most perverse tax paid in Brazil. On the other hand, there is no contradiction in wanting a stronger economy, generating jobs and income with sustainable growth, she said.

For the minister, it is necessary to combat the causes of inflation, which include external factors. Domestically, however, the government “is doing its part” to combat economic instability, with the presentation of measures such as the fiscal framework and tax reform, and to create a scenario that makes it possible to lower interest rates.

Social differences

Simone Tebet said that, at this moment, it is important to have a look at the social aspect, since Brazil is among the ten countries with the most inequality in the world. “Inequality is structural and it is perverse,” she said. “The poorest face of the country will be reflected very directly in the future of Brazil, which are our children. They pay a very high price, the misery begins in early childhood and consolidates in high school, in youth.”

In this sense, it is necessary to guarantee investments for greater growth and productivity, added the minister. “Brazil has grown very little in recent decades, less than 1% on average in the last three decades, something very wrong”, said Simone, arguing that it is necessary to have balance and rationality and accurate economic policies to plan the future of medium and long term.

“We have to do our homework. We know that we cannot spend more than we collect and that we have to bring the public deficit to zero in the coming years, and our goal is to get it to zero in 2024. a responsible debate on tax reform. “It will guarantee Brazil’s long-lasting sustainable growth, it will immediately impact GDP growth (Gross Domestic Product, sum of all goods and services produced in the country)”, he added.

In his speech, the president of the Senate, Rodrigo Pacheco, highlighted the role of the House in guaranteeing economic growth and reducing inequalities. “We need to build paths and present solutions to avoid the loss of purchasing power of the Brazilian population and guarantee the sustainable growth of the economy”, he said.

In Pacheco’s opinion, keeping interest rates high for a longer period of time, while providing security with regard to inflation targets and price controls, also compromises credit, private sector investments and short-term growth, “setting an obstacle to development and the eradication of poverty and (maintaining) marginalization and the reduction of social and regional inequalities”.

“We fully understand that economic agents work with expectations and these expectations impact the course of the economy. In addition, the Brazilian population, which, in its vast majority, occupies the poorest strata of the economy, also expects to meet its needs, to have access to food, health, education, work, housing, transportation, leisure and many other social rights. Therefore, it is necessary to pursue this balance of expectations”, added Pacheco.