Government will count on IMF support to formulate fiscal anchor

Finance Minister Fernando Haddad said that the Brazilian government will rely on the technical support of the International Monetary Fund (IMF) to formulate a proposal for a new fiscal anchor for the country. The support was offered by the organization during a meeting between Haddad and the director general of the IMF, Kristalina Georgieva, at the World Economic Forum, in Davos.

“Aware of our discussion on the fiscal anchor, the IMF made its technical team available to Brazil so that it becomes aware of all the rules in force, which are working more and less well for us to prevent and bring to Congress the most credible and sustainable fiscal anchor,” Haddad told reporters in the Swiss Alps.

Faced with the international political scenario, the IMF showed concern about political sustainability in Brazil, according to Haddad. “This is very important at the moment we are living. There is no point in having fiscal rules that do not take social responsibility into account,” he said, adding that it is in democracy that people decide their destiny by voting.

The Treasury hopes to present the fiscal framework in April and, by the end of the semester, approve the tax reform.

The Brazilian minister also commented on the bilateral meeting he had with José Antonio Ocampo, Minister of Economy of Colombia. The focus, according to him, was the integration of Latin American countries. “There is a huge desire for integration among Latin American countries,” he stated.

According to Haddad, in a world with powers such as the United States, Europe and China, Latin American countries need to be integrated and articulated in negotiations with other economic blocs in order to play a role on the international stage.

“Disunited we will not go far in a world that has the United States, the European Union, China are economic giants. To play a role in this world, we need to be more integrated”, said the minister.

Asked about the message he has been giving to international investors, Haddad repeated the focus on returning to the level of income and expenses before the elections and the pandemic, when they were close to each other. This is the way to approve a fiscal and tax reform to give sustainability to the Brazilian debt.

“International investors are eager to invest in Brazil because the country has returned to the negotiating table on democracy, the environment, political stability,” stated the minister. “I want to believe that in the first quarter we will address these reforms and that will give the international community a lot of security”, he concluded.

The government wants to vote in the second half of the year on the proposed tax reform focused on income. The part focused on the impacts on consumption should be voted on in the first half. The Minister of Finance, Fernando Haddad, provided the information while participating in the World Economic Forum, in Davos, Switzerland, alongside the Minister of the Environment and Climate Change, Marina Silva, at the table Brazil: A New Roadmap.

“The tax reform that we want to vote on in the first semester is the consumption tax. But, in the second semester, we want to vote on a tax reform on income to relieve the poorest layers of the tax and to burden those who do not pay taxes. Let’s rebalance the Brazilian tax system to improve income distribution in Brazil,” said the minister.

The correction of the Income Tax (IR) table is one of the central points in the new government’s economic agenda and was Lula’s campaign promise. The idea is to expand the income tax exemption range for those earning up to R$ 5,000. Currently, the limit is R$ 1,903.98. The value has not been updated since 2015.

During the panel, Haddad said that the idea is to build a consensual text, using the two proposed amendments to the Constitution (PEC) that are being processed in the National Congress, one in the Chamber of Deputies and the other in the Senate, and that have been debated by the parliamentarians. The proposals are based on ideas prepared by the Special Secretary for Tax Reform, Bernard Appy.

As for consumption, Haddad had already stated, in Davos, that the government decided to leave out of the package the recomposition of the original rates of the Tax on Industrialized Products (IPI) in some sectors.

“There is a discussion that has already taken place, there is a lot of debate that has already taken place, two proposals that are drawing the attention of parliamentarians, and we understand that the path is to reach a consensus text. And, if it depends on the government, we will vote tax reform in the first semester”, he added.

The minister also said that if federal revenues and expenditures return to pre-covid-19 pandemic levels, the government will be able to zero the primary deficit in two years. “We intend to return expenses and revenues to the same pre-pandemic crisis level, which is 18.7% (of GDP, Gross Domestic Product). If we achieve this in two years, we will be able to zero the deficit.”

Haddad also spoke about the government’s economic agenda. Among the main points, he cited, in addition to the fiscal anchor, the proposal to democratize access to credit, the review of tax relief for some sectors of the economy, the regulatory agenda centered on public-private partnerships, concessions, investments by part of the state and appreciation of the minimum wage.