Haddad proposes new rule for mandatory spending – 04/07/2023 – Market

Towards the end of the year, the government should discuss norms for the growth of mandatory expenses and budgetary constraints (expenses that are linked to a floor or also to revenue growth). This is what the Minister of Finance, Fernando Haddad, is going to propose to President Luiz Inácio Lula da Silva.

The minister says that he still cannot say precisely what will be the subject of “more stable rules”, but readjustments in the minimum wage, civil servants, floors and links to health and education, for example, must be at issue. The idea is to put an end to the “back and forth” of bindings and readjustment rules to each “conservative” or “progressive” government.

Haddad also adds that the major review of exemptions should take place after the approval of the tax reform, which he imagines will be approved in the Chamber in June and July and in the Senate in September or October.

Then there would be a greater discussion of tax exemptions which, according to Revenue calculations, reach R$ 400 billion per year. The review (“reencumbrance”) would be gradual, to also meet progressive revenue needs, even to meet the surplus targets of the fiscal framework. Under the “NRF”, a new fiscal rule, the minimum growth in federal spending will be 0.6% per year (in real terms, in addition to inflation) and a maximum of 2.5% (limited growth, per year, to 70% revenue growth).

Haddad also adds that next week he will publish the new rules to facilitate public-private partnerships (a way of contracting investment, management or private service, in which the company bears some remuneration risk, but in which the public sector guarantees a payment).

It is already known that the National Treasury would endorse partnerships in states and municipalities, reducing the risk that companies will not be paid and thus increasing the attractiveness of the business, which is stuck in Brazil. Haddad also says that companies in these regional PPPS will also be able to issue incentive debentures (they will be able to raise tax-free financing in the capital market, as is already the case in the federal case).

In the interview, Haddad also criticizes the “jabutis” and the patrimonial lobbies (of companies) that take revenue from the federal government, “legal-legislative” exoticisms, talks about the role of the BNDES and refutes criticisms of the new fiscal rule, of the PT and economists ” orthodox”.

Did the president ask for changes or set guidelines for what the fiscal framework should be? For example, increased spending on health and education? President Lula did not ask for a change in what was presented to him. When I took it, it was already quite mature. [dentro do governo, em diálogo com outros ministros e com o presidente do Banco Central, Roberto Campos Neto]. He didn’t ask for parameter changes, he understood the logic. On recomposition of expenses in health and education, there was only discussion of how to do it. We took a consensus to the president of what all these actors understood to be relevant.

With the end of the ceiling approved by the Michel Temer government, health and education expenses should again have a minimum floor, linked to revenue growth. Other expenses, including mandatory ones, will grow even more, such as Social Security, due to the real increase in the minimum wage. There will be a floor for investments. It is possible that mandatory expenditures will grow beyond the pace of growth of total expenditure, compressing other expenditures. Is there any attempt to contain mandatory expenses? By the end of the year we want to discuss this again. We want to avoid what is recurrent: progressive governments revoke the disengagements, conservative governments reintroduce [regras que desobrigam o governo a gastar com certas rubricas do Orçamento, como em saúde ou educação]. What we want to discuss, after the tax reform, is a rule that puts an end to this coming and going, that provides greater and more consistent stability for this type of expenditure. [obrigatória ou de crescimento vinculado a receitas].

By the way, since 1988, we have this problem. The Fernando Henrique government came with the DRU [desvinculação de receitas]. The Lula government replaced the losses. The Temer and Bolsonaro governments came and resumed the disengagement. Our government comes and replaces the losses. It’s time for us to have a more sustainable rule.

[Essa rediscussão] It is not in the framework, because there is no way to be in a supplementary law, but as there is a constitutional amendment that will or will not be extended at the end of the year on untying, we understand that after the tax reform is an interesting moment to have this discussion. This does a lot of harm to the country. One time, you freeze the minimum wage for seven years, another time, you give [reajuste de acordo com o crescimento do] Nominal GDP. So let’s look for a stable rule in a negotiation to avoid the bumps we’ve seen in recent years…

Including readjustments of civil service, minimum wage? I’m not wanting to anticipate because there are decisions within the scope of the President of the Republic. But I think that a serious discussion about the continuity of rules like this should be on the agenda, in the second semester. So let’s look for a stable rule in a negotiation to avoid the bumps we’ve seen in recent years…

Will it be mandatory that expenses grow at least 0.6% per year, in addition to inflation, as is the framework? The increase in spending during the spending cap was 0.6% per year. Even with the toughest measure ever taken in world history, which was the spending ceiling, spending grew by 0.6%. In the seven years of ultraneoliberal governments, spending grew by 0.6% [ao ano]. In my opinion, it would be a mistake to sell something to the country that even ultraneoliberal governments have not been able to deliver.

We better come up with something doable [levando em conta] the growth potential that the Brazilian economy has. The assumption behind many of the questions you are asking me is: Brazil will never grow again

On taxes, Mr. already mentioned betting companies, the end of the impact of ICMS credits on federal revenue. What else is coming in terms of exemptions or reenactments? Rightly or wrongly, the BNDES has been heavily criticized by the press over the last few years for privileging certain sectors, some calling them “national champions” and all. There are about five BNDES within the federal budget. What I don’t see the press complaining about with the same energy, let’s put it that way. I think this is weird.

Mr. You’re talking about subsidies, right? Subsidies, exemptions, exemptions.

Example. Due to a parliamentary amendment, within a supplementary law of 2017, the subsidy for company costs today stands at 88 billion

Mr. you’re talking about loss of federal revenue because of ICMS credits, right? This subtraction, in the big hand, from the calculation basis of a federal tax, for non-payment of a state tax, was an assault on public coffers. I can’t describe it any other way.

We have already lost the PIS/Cofins calculation base due to a decision by the Supreme Court that ordered the exclusion of 100% of ICMS from the calculation base, on demand and retroactive. Now, had the December decision [do STF]which ordered a review of the entire life of the Social Security.

These two decisions alone led to what the previous government boasted about, what would have been the economy with the Social Security reform, one trillion [de reais, em uma década], without anyone noticing. If we continue like this, it won’t work.

If you’re going to end federal taxes, you’re going to end the national state. Because there is no national State without a tax base, I learned that at school.

We are in a situation where this type of artifice, a bad combination between tortoises and exotic judicial decisions, an exoticism that only exists in Brazil

What are the other “BNDES” [o equivalente em subsídios aos empréstimos do banco]? There are things that are okay. No one is thinking of revising ProUni, exemption from Santas Casas, all of this is part of the social system, of social protection in Brazil. ProUni is a scholarship. Santa Casa plays a complementary role to the SUS. This type of benefit is a fair benefit. investment subsidy [das empresas via créditos do ICMS e seu efeito em imposto federal] we want to keep it, even considering that this is not the most appropriate way to do it: that is, the state government deciding which exemption the federal government is going to give. But even to mitigate the effects of the revision [da isenção] let’s review only the subsidy on costing [das empresas]. For investments, let’s keep

It will be change by law or provisional measure. There will be an opposing lobby, especially from retailers. What they will gain from interest rate reduction is much more important than what they will spend to pay accordingly. They are not understanding the macroeconomic balance that we are pursuing.

That’s why some sectors are also against tax reform… That is the problem of Brazilian patrimonialism. Every sector sees its piece. And who sees the whole? It’s each one looking for their piece and the macroeconomic consistency of the country goes down the drain.

If those who do not pay taxes start paying taxes, we will all pay less interest and the economy will grow. For the common good. As long as privileged sectors continue to do what they are doing, lobbying Congress, lobbying the judiciary, lobbying to erode the state’s tax base… [vamos ter isso] five BNDES in the Federal Budget.

And I see the BNDES with good eyes. He did great services to the country. I’m making a comparison, I’m talking about the scale here [de subsídios em geral no Orçamento]which are in the Budget and without transparency.