Haddad is being a ‘hero’ for defending zero deficit in the PT government, says Maia – 11/03/2023 – Market

The real increase in expenses authorized by the new fiscal framework and the resistance of Brazilian society to the increase in the tax burden create an impasse to be faced by the current government, assesses Rodrigo Maia, former president of the Chamber of Deputies and current president of the CNF (National Confederation of Financial Institutions).

At the head of the entity, which represents different members of the financial sector — such as banks, brokers and credit card companies —, Maia sees Minister Fernando Haddad (Finance) as a “hero” for defending the goal of zero deficit under Luiz’s administration. Inácio Lula da Silva (PT) under the resistance of his own allies.

“A real increase in expenditure, for a tax burden that is already very high and a society that does not want to pay more taxes, ends up generating this type of difficulty that the minister is experiencing in his relationship with his own left-wing politicians”, says Maia in interview with Sheet.

Participant in negotiations on credit card revolving and interest-free installment payments for purchases, he defends “less emotion” from the actors involved and says that everyone needs to give in a little. “The revolving interest rate and the growing default rate show that there is a structural illness in the product,” he says.

Mr. has participated in discussions about revolving interest. How can this matter move forward?
It is a topic that has become very radicalized. Everyone has their own narrative. What I said before, during and after the meeting [com o Banco Central]: self-regulation of this issue by banks is very risky and unconstitutional, as it will clearly harm competition issues. It can be characterized as an agreement.

Like a collusion.
Anyone who feels dissatisfied will say that it was not self-regulation and violates competition law. Banks should not, and are not, trying to build regulation that relies exclusively on banks’ positions. This is a sick product. As much as it is very relevant for society and for all links in the chain. The revolving interest rate and increasing default rates show that there is a structural illness in the product.

When mr. You say sick product, are you referring to revolving interest?
All ends are sick. The most visible is the revolving interest. But all the others are visible: default, the cost of anticipation, especially for small traders. The indebtedness of families, due to the incentive to pay in installments, is also a clear sign that there needs to be rearrangement. No one can imagine that a bank is charging an interest rate [alta] of his own free will. The political cost, the image cost, would not be reasonable.

What is the way then?
With a diseased product, we have two choices: treat the disease or remove a part of the body. Treating with medication takes longer. What I have advocated is to look at the end consumer with greater concern. The credit card product represents 40% of consumption in Brazil. Interest-free installments represent half or a little more than half. Any decision made will impact society’s consumption and the economy.

What type of treatment could be given?
It would be necessary to work with some transition to arrive at a model that can have an installment plan that does not encourage debt, a reasonable default for any banking product, an anticipation of credit from acquirers that can better reflect the issuer’s risk — 70% of issuers They are the big banks, so they have a much lower market risk. And that there can be a more appropriate revolving cost for those who are late in their installments.

Default rates are high because the interest rate is high, and the interest rate and default rates are high because you stimulate long installments without price separation, either in cash or in installments, or with interest from some number of installments. People have to sit at the table with less emotion, with less heart, with less liver, with more reason. In a negotiation, everyone can give in a little.

Is it possible to limit the number of installments?
The Central Bank made this proposal. The initial proposal of 12 installments, according to the banks, has very little impact, 96% is below that. On the other hand, default starts from the fourth installment. There is a proposal to start adding interest from some installment. Arbitrating an equation is a decision of the actors and, mainly, of the regulatory body. It falls within the constitutional role of the Central Bank.

Mr. Do you see progress? Without an agreement within 90 days, the debt limit will double for the revolving debt.
Failure to construct a rearrangement and apply this interest rate, and that alone, will not be enough to meet society’s demands. I think interest rates and defaults fall, but not by much. It was a strong message from politics that everyone is mature and has to sit at the table to build a path.

From my experience in the Presidency of the Chamber, I have never seen something that is resolved without everyone opening their position in a transparent way and trying to build a balance. Instead of campaigning against each other, actors should be more concerned about having a seat at the table.

How do you see the recent role of the CNF and its role in this articulation?
The CNF was a little dim in recent years, perhaps due to the decision of the members themselves. I think we need to build an agenda looking forward, and that is the role I will try to play now, if it is the members’ decision. AND [mostrar] What is the importance of the financial industry in people’s lives? It’s always that thing ‘the financial industry, especially banks, always charge expensive interest’. Wait, let’s explain her role properly. We need to win society the way agriculture won, so that it has better conditions for dialogue with Congress, the government and the Judiciary.

How do you evaluate the government’s proposal to tax exclusive and offshore funds?
Previous governments had more draconian texts regarding the decision with investors. But I think this debate trying to pit rich against poor is not the best way. The discussion improved, but it remained very bad.

There are a lot of exclusive funds that have 40 thousand jobs under them. He [Investidor] made money, paid taxes, bought a company and built a structure within the rules of the game. This structure also passed through the PT governments. Generating extraordinary taxation on this type of asset now is not fair.

You have to be careful not to create arbitrage and have people pay for the stock and migrate to another product that won’t pay quotas, or even leave Brazil. In addition, it maintained the exemption for the real estate sector, encouraged debentures and the agricultural title. The government’s intention was to reduce the distortion, but it increased it. If there were to be exemptions for some sectors, it would be better for everyone to have a linear rate.

Can arbitration, in the end, nullify the revenue gain?
The government will have a greater revenue gain than it was forecasting in stock, and the flow over the years will not have the revenue it expects, it will be lower. There will be arbitration. The government’s role would be to reorganize the products so that they all have the same tax rate. What can not [incentivar] decision-making for tax reasons.

The agricultural bench was one of the main points of resistance…
I’m not discussing the political issue. I also think that the government did not have the vote to affect agriculture and real estate, but this increases the distortion. And it modifies the decision to allocate resources based on the tax benefit, not based on the best allocation of sector A, B or C. If I had the power, I would always advocate reducing all types of distortions, especially litigation.

This proposal is part of Minister Fernando Haddad’s plan to rebalance the Budget.
Anyone who thinks there is a lot of room to cut in the Budget is wrong. There isn’t much to cut in the short term. On the other hand, the government and Congress demand expansion of public spending. The framework is proof of this: real increase in public spending. There is a majority society that does not want an increase in the tax burden. So, there is an impasse between what it costs the State and what society is willing to pay. We cannot think that this impasse will be resolved naturally. Will not be.

The role of the State today would be [discutir] how to increase the productivity of the economy. In terms of income, the government’s main objective should not be to increase revenue, but unfortunately the short term overwhelms us with this need to comply with the framework.

Should the government have opted for a more gradual pace of fiscal adjustment?
I defend surplus. I have a more liberal view of the economy. If I had the power to influence, I would have looked at zero primary deficit with a smaller increase in spending. But I doubt that Minister Haddad would achieve anything other than what was approved.

Haddad is doing the most he can, being a hero. For the government he represents, he achieved a lot by bringing the deficit to zero. But the real increase in spending, for a tax burden that is already very high and a society that does not want to pay more taxes, ends up generating this type of difficulty that the minister is experiencing in his relationship with his own left-wing politicians.

How does Tax Reform affect the financial sector?
The banks defended and are in the general regime for [tributação de] fees and commissions. They will pay whatever rate it is. Our VAT is taxing the banking spread. There are only five countries in the world that do this. The government needs revenue, we understand. [Mas] then no one can complain that the cost [do crédito] It’s tall.

The bank spread is not a bank product. He is just an intermediary and collects the money [do imposto] for the government, but the borrower is the one who pays. Someone might say ‘it’s talk about banks that don’t want to pay taxes’. However, in terms of tariffs and commissions, our rate is the standard one, and as the taxation of the spread will not decrease, we will have an increase in the tax burden of R$9 billion.

The rapporteur created a floor for banks’ tax burden.
The lock [contra aumento de carga sobre o spread] It wasn’t our decision. It was an idea from [secretário extraordinário de Reforma Tributária, Bernard] Appy, because he always defended exemption. As secretary of the first Lula government, [ele dizia] that spreading taxation generates inefficiency in the economy. As the government needs to collect revenue, it was limited. It appears that the banks benefited, but they did not.

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Rodrigo Maia, 53

He is president of the CNF (National Confederation of Financial Institutions). He was a federal deputy for Rio de Janeiro for six terms and presided over the Chamber of Deputies between 2016 and 2021. He studied economics at Faculdade Cândido Mendes, but did not complete the course. Before working in the public sector, he worked at BMG bank, in 1990, and at Icatu bank, between 1993 and 1997. He was born in Chile, during his father’s exile, the former mayor of Rio César Maia.