Lula’s government starts under pressure and without the ‘slack’ of the 100 days in the economy

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New leaders used to have a vote of confidence from voters and decision makers at the beginning of their government, but the global context of political tension has forced leaders to ‘show their cards’ earlier. Fernando Haddad and Lula during the first campaign rally in SP, in the Anhangabaú Valley WAGNER ORIGENES/FUTURA PRESS/ESTADÃO CONTENT The first 100 days of government are known as a kind of “honeymoon” between the politician who arrives an office and its constituency. But the beginning of the third term of Luiz Inácio Lula da Silva (PT) does not enjoy the traditional time of tranquility, especially in the economy. Market analysts and economists consulted by g1 recognize that the charge is more intense than average — given that, strictly speaking, the mandate began just 20 days ago —, but attribute part of the blame to the dubious signals from the president and his new ministers. In a way, what anticipated the pressure against the Lula government was the complete abdication of a transition process in the management of Jair Bolsonaro (PL) after the defeat at the polls. READ MORE After attacks in Brasilia, next steps of the economic agenda divide opinions ‘At the most, until April’, says Haddad about date to present new fiscal rule Haddad says that, if it depends on the government, tax reform will be voted on in the 1st semester It was the ministers of Lula who took the lead in the negotiations to amend the budget sent to the National Congress by Bolsonaristas. The document did not foresee resources for the operation of basic programs in 2023, among them the Popular Pharmacy and the BRL 600 Bolsa Família. to the Constitution (PEC) of the Transition, which relieved the resources for the operation of the state and guaranteed the permanent increase of the former Auxílio Brasil — a campaign promise of both candidates. “It’s as if those 100 days — and the wear and tear that goes along with it — were brought forward. It was a transition team that had to negotiate guidelines and approve PEC without being in the chair”, says Carla Argenta, chief economist at CM Capital Markets. At the same time, the PT’s disdain for economic agents took a bad turn. The financial market felt attacked in the first speech by the president-elect at the headquarters of the transitional government, at the Centro Cultural Banco do Brasil (CCBB). The indisposition came in the form of a shot in the dollar and a falling stock market. The petista’s promise to end the spending ceiling was also “choked up” before even presenting an alternative. And the nomination of Aloizio Mercadante as president of the National Bank for Economic and Social Development (BNDES) did not please. Economist and former Central Bank director Tony Volpon makes an analogy with a tennis match, and calls Lula’s decisions “unforced errors”. For him, the statements did not bring clues about the government’s plans and only served to give a “belligerent” (conflictive) tone to the relationship with economic agents. Haddad says he will “rebalance the Brazilian tax system to improve income distribution” “The market will always be on the defensive with a left-wing government. If you give reason for this defensiveness, there is a price that comes in the form of an increase in interest rates. This has a cost for the economy, for the Treasury”, says Volpon. On the other hand, the economist also recalls that the market projected unrealistic expectations regarding the social spending agenda and the assembly of the new government’s economic team. “A breach of expectation is when something likely is expected, but it does not happen. It was extremely unlikely that the Minister of Finance was not a member of the PT, for example, ”he says. No truce At least four government plans have been, since the election, under intense scrutiny by investors: the readjustment of the minimum wage, the expansion of Bolsa Família to R$600, the elimination of the spending cap as the country’s fiscal anchor and the expansion exemption from Income Tax for wages of up to R$5,000. The measures are part of a new government’s social rescue reinforcement plan, which defines the undertaking as a way of “putting the poor in the budget”. The market turns its nose up because the measures generate an increase in government spending, and there is an expectation that compensation will be created to finance them without further compromising public accounts. In an interview this week with GloboNews, Lula commented on the issue. Asked if he saw fiscal and social responsibility as antagonistic, the president said that “they are antagonistic because of the greed of the richest people”. “What we want is for there to be a social counterpart. It doesn’t interest us to have a society of miserable people. We want to have a middle-class society”, said the PT. “The tempers were raised on both sides. That passed and we can judge the concrete acts of the federal government, ”he says. Lula defends income tax exemption for those earning up to R$5,000 While the president advances in his speech, financial agents demand the origin of the money. After the election, a consensus was reached that it would be necessary to increase the country’s debt to cover the moment of emergency, but the size of the package generated noise. The source of the Bolsa Família readjustment, the Transition PEC, which releases R$ 145 billion from fiscal constraints, had its period of validity reduced in the National Congress to just one year. The determination imposes that adequate financing be found for the program in the following years, which should be discussed again in the 2024 Budget. of a new fiscal rule to control public spending. Finance Minister Fernando Haddad (PT) promises to deliver it by April — close, therefore, to the famous 100-day period of government. In addition to the new “fiscal framework” — the name adopted by the government —, Haddad presented a plan to increase revenues and cut some expenses to face the deficit forecast in this year’s Budget, of R$ 231 billion. “The minister himself recognized that he would only be able to deliver about half of that amount for the year, which is close to [valor] that was market consensus. This makes the news less relevant”, says Paulo Val, chief economist at Occam Brasil. The specialist also says that the package prioritizes revenue growth and does little to attack public spending. “In a country with the size of spending that we have, it is not the most appropriate. Adjustment needs to come on both fronts. Just on the spending side, it would be very difficult. And, on the revenue side alone, it would be very costly for society,” he explains. Míriam Leitão, on Haddad’s new economic package: ‘If it is fully complied with, it could lead to a surplus’ Finally, Haddad is heading to negotiate and vote on the tax reform in the first half of this year. The creation of a Value Added Tax (VAT) is intended to stimulate investment in the country, restore the industry’s competitiveness and improve revenue. “The base scenario, which is in the market price, is a process of maturation of the tax reform in these 100 days, but to be processed and approved after the parliamentary recess”, says Carla Argenta, from CM. The economist ponders, however, the government’s ability to maintain focus amidst the still troubled political scene in Brasília. As if the tight result of the elections was not enough, which created animosity right at the beginning of the government, the terrorist invasion of the buildings of the Three Powers mobilized time and effort from Lula’s top leadership. “It would be terrible for the matter to block the agenda of Congress, without letting the houses vote on the proposals. It would be a very big political wear and tear and the lost time would bring problems to the economic indicators”, she says. Davos: Haddad says government considers terms for joining OECD What comes first? The g1 sought out the Ministry of Finance to deepen the schedule of measures, but the folder did not grant an interview. On a trip to Davos, to participate in the World Economic Forum, Minister Fernando Haddad gave the same clues that he repeated in Brazil: reduction of the deficit, sending a fiscal framework until April and tax reform in the first semester. But he also claims that the relationship with the market has improved in recent weeks with the alignment of expectations. Before a dinner with investors and bankers, the minister stated that the proposed agenda is an opportunity to “transform this delicate legacy” left by the previous government, but that it also seeks to carry out structural changes. “Let’s face it: taxation is a presupposition for development, but it is not an end in itself. You have to have your accounts in order, but to develop the country, you need a certain proactive policy of mapping opportunities,” said Haddad. Even though the tax collection increase plan presented by the Treasury is a first step in a positive direction, analysts expect more. Tony Volpon believes that there was some accommodation of the government’s plans, and mainly a definition of method: Lula set up a counterweight of orthodox economists through the Ministry of Planning, commanded by Simone Tebet, and will be the final voice in the referrals. “As time went by, it became clear: this is a government that will spend more, will tax more. The balance is inflation and higher interest rates, because this is a counterpoint to a greater fiscal impulse”, says the economist.

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