Fishlow and Ipea alerts – 07/18/2023 – Elio Gaspari

The American professor Albert Fishlow is credited with introducing the debate on income inequality in Brazil at a time when only the “miracle” was talked about. Decades of academic studies on the economy of Pindorama are due to Ipea. Both turned on the yellow light to contain the triumphalism of the government’s promises.

Ipea pointed out the risk of Brazil having one of the highest VATs in the world. The expressive victory obtained with the approval of the constitutional amendment of the Tributary Reform blurred the central issue of any policy of the genre. It appeared with the virtue of simplifying the system, but something can be simpler and also heavier.

Minister Fernando Haddad recognizes that “the more exceptions there are, the less the reform will work”. There is still a long way to go and the exceptions already exceed international practice. By the floor of the carriage, instead of being reduced, they can be increased.

Fishlow did not address tax reform, merely observing that “it’s not obvious where more investment will come from.” From the outside, “it’s quite uncertain”. From the inside, “for some reason it never occurs.” His concern is the risk of Lula repeating a policy that has already gone wrong.

The work of researcher João Maria Oliveira deals with Tax Reform and points to the risk of creating one of the highest VAT rates in the world. Minister Fernando Haddad responded to the article praising the alert and clarifying that it did not take into account factors such as the reduction of subsidies and the drop in tax evasion. These factors may be relevant, but practice teaches that all finance ministers promise to reduce them and only one, every 50 years, delivers them.

The way things are, according to Oliveira, the VAT rate could reach 28%, surpassing Hungary, which charges 27%. The Minister of Planning, Simone Tebet, estimates that it will be between 26% and 27%. Haddad promises that, over time, it could drop below 25%.

This puts Pindorama in a special situation: a Tax Reform is being discussed that is good because it is simple, but the real value of the rate that will be charged to taxpayers is not known. It will be smaller if things go well and its value will be defined by a supplementary law. For the time being, what is in the market is the possibility of having a GDP contraction during the month of May.

Tortoise breeders love issues that will be clarified in complementary laws. If a constitutional amendment has already shielded the Manaus Free Trade Zone and various sectors of the economy, the worst could happen later on. Smart people, they praise the reform, praise the ministers and wait for the time to strike, taking their share of the mush.

The government entered into this discussion promising to tax capital and ease consumption taxation. In less than a year, it has lowered the tone in the discussion of what affects the upstairs. In addition, he was delighted with his own voice and with the successful approval of the PEC in the Chamber.

Economist José Serra summarized the risks of official triumphalism: “So far, we have a heap of commonplaces and frightening federative and operational threats.”

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