Haddad, Tebet and Campos Neto discuss interest rates and inflation in the Senate

The Ministers of Finance, Fernando Haddad, and of Planning, Simone Tebet, and the President of the Central Bank, Roberto Campos Neto, came face to face this Thursday (27) in a Senate session that discussed economic policies, inflation and interest rates , which has been heavily criticized by members of the government since the beginning of the new administration of Luiz Inácio Lula da Silva (PT).

The session also has the participation of economist Armínio Fraga and former deputy Rodrigo Maia, who today acts as an independent consultant.

The ministers and Campos Neto agreed that the interest rate in Brazil is high – at 13.75% – and that it needs to be reduced, but they disagreed on the timing of the decrease. The president of the monetary authority repeated once again that the Central Bank does a technical job of analyzing all possible variants to define the course of monetary policy, and acknowledged that the resolutions of the Monetary Policy Committee (Copom) often do not please the wing government policy.

“The Central Bank carries out technical work with a highly qualified staff that seeks to fulfill its mandate in terms of financial stability, always at the lowest possible cost to society. We have a horizon of technical action that, many times, differs from the political cycle, but we understand – and that is why we were given autonomy – that it maximizes the gain for society in the long term. You cannot achieve social stability with runaway inflation,” he said.

However, Haddad countered and said that the Brazilian economy will continue to slow down due to monetary policy to the point of directly impacting tax collection. According to him, the Central Bank’s decisions need to walk hand in hand with the government’s fiscal policy, which are part of the “same mechanism”.

“I have no way of disassociating the monetary from the tax. I’ve been taking unpopular measures, but they are measures that just clean up the accounts to allow for a longer planning horizon. The work has to be in many hands, with the monetary strengthening the fiscal and the fiscal strengthening the monetary. And also prudential, as we have several sectors of the economy drastically affected, ”he said.

He also recognized the need to cut spending “especially tax spending”, and that the current Brazilian tax system is an “unmanageable patchwork quilt”.

Simone Tebet echoed Haddad’s speech, stating that inflation, interest rates and growth must go hand in hand, without one or the other “getting in the way”. And she stated that there is no contradiction in the speech of the monetary authority that the reduction of the interest rate cannot be done without meeting the necessary conditions.

But, according to the minister, the Central Bank cannot rely solely on technical issues, and needs to “focus on public policies and Brazil’s growth.”

“The Central Bank cannot consider that its actions are only technical. They are technical, but they are also decisions that interfere in politics, especially its communiqués and minutes”, he added, agreeing with Campos Neto’s statement that high inflation mainly affects the neediest population.

The minister stated that the government has been playing its part in trying to put control over the accounts through the design of the new fiscal framework and corrections to fiscal policies implemented in previous governments, and that the institutional and political crises are being overcome.

It is now necessary, he says, to understand that other factors are influencing inflation that end up impacting the decision to keep the interest rate high and with no forecast of a fall, as Campos Neto explained in a hearing also in the Senate last Tuesday (25).

Return of the casting vote and review of tax benefits

Also during the session, the ministers commented on what the government has been doing to correct the public accounts, such as the new fiscal anchor project, the tax reform, among others.

Haddad commented on the need to return the casting vote to the Tax Resources Administration Council (CARF), which has been criticized by companies and parliamentarians for supposedly causing an increase in revenue at a time of crisis in various sectors of the economy, and which would directly affect taxpayers.

He justified it by saying that he received a letter from the Organization for Economic Cooperation and Development (OECD), on Wednesday (26), in which he explained that the mechanism is adopted by the largest economies in the world and that it would not cause any negative impact to taxpayers, who still shall have the right to challenge the debt in court.

He also stated that it is necessary to review the tax benefits granted by the government, which amount, according to him, to around R$ 600 billion in “inadequate and unacceptable practices in the developed world”. Fernando Haddad announced on Monday (24th) that he intends to carry out a thorough analysis of the companies benefiting from the tax waivers.

The minister also celebrated the victory that the government had at the Superior Court of Justice (STJ), also on Wednesday (26), which allowed the Union to charge Income Tax and Social Contribution on Net Profits (CSLL) on ICMS tax incentives . The measure can guarantee an increase of up to R$ 90 billion to the public coffers.

However, during the afternoon, Minister André Mendonça, of the Federal Supreme Court (STF), granted an injunction suspending the decision until the Court judges the case. Despite the injunction, the Justices of the STJ concluded the judgment for not having received the official notification.