New tax rule comes out in March, says Haddad – 02/15/2023 – Market

Finance Minister Fernando Haddad (PT) said this Wednesday (15) that the Luiz Inácio Lula da Silva (PT) government should bring forward the announcement of the new fiscal rule to March, which will replace the spending ceiling.

At an event at the BTG Pactual bank, Haddad also made nods to the Central Bank, reinforced the need for harmony between fiscal and monetary policies, defending the reduction of interest rates, and was indignant with the crisis in Americanas.

“We will probably announce in March what we understand to be the appropriate fiscal rule for the country,” he said.

Haddad said until then that he intended to present the fiscal framework by April. In his first speech as finance minister, he promised to send the proposal to the National Congress in the first half of this year.

According to what was approved in the PEC (Proposed Amendment to the Constitution) in December last year, the President of the Republic must submit to Congress, by means of a complementary law, a new tax regime by August 31st.

According to the holder of the economic portfolio, the anticipation was suggested by the Minister of Planning and Budget, Simone Tebet (MDB), and by the Vice President of the Republic and Minister of Development, Industry, Commerce and Services, Geraldo Alckmin (PSB).

“We had already pulled to April because of the LDO [Lei de Diretrizes Orçamentárias]but Simone [Tebet] thought, rightly, Geraldo Alckmin himself as well, that to send to Congress [Nacional] together with LDO it was good to have a discussion period”, he added.

The LDO project must be sent to the Executive for Congress by April 15 of each year, and be returned for sanction by July 17 of the same year. Within this schedule, without a new fiscal framework being presented beforehand, the start of the 2024 budget discussion, which should be 100% Lula, would have to be based on the rule that is in effect, and which the government rejects, the spending ceiling .

The minister stated that the economic team has been analyzing tax rules from several countries and documents from international organizations for two months. “No country in the world adopts a spending ceiling. Not because it is more or less rigid, it doesn’t because you can’t reach it,” he said.

The spending cap, approved during the administration of then-President Michel Temer (MDB), is a mechanism that limits public expenditure growth to the inflation recorded in the previous year and had been in effect since 2017.

In recent years, it has become the main anchor of public accounts, being identified as the tool that helped control government finances. However, the rule has been circumvented several times, especially after the pandemic.

“Fiscal rule, monetary rule, the more you are demanding, I am in favor of demanding goals, otherwise you don’t work, if you set an inflation target, non-demanding fiscal target, the State stops working, it has to be demanding, it has to be rigorous, it has to be demanding, but a human being has to be able to do that,” said Haddad.

“When you start projecting unrealistic scenarios, you lose credibility, you lose dialogue, people will no longer believe in you,” he added.

At the event, the Minister of Finance also commented on the worsening perception of financial market analysts, saying that “each sneeze in Brasília generates enormous turbulence”. Haddad says he told Lula that the government is walking a tightrope and it is necessary to be cold-blooded.

Amidst the clash between the BC and the government, the inflation projected by the financial market for 2023 in the Focus bulletin rose to 5.79%, more than one percentage point above the target ceiling to be pursued by the BC (4.75%) . This would represent overshooting the target for the third consecutive year.

For 2024, market expectations for the IPCA (Ample National Consumer Price Index) rose to 4% – already above the central target (3%).

Haddad also made nods to the BC, arguing that to unlock investments with the launch of regulatory initiatives by the government it is necessary to reduce the interest rate – today the Selic is at 13.75% per year. He also said that he would be sorry if the monetary authority got carried away by “noises” in the economy.

“I think the situation today is better than a month ago, although expectations are very contaminated by all this noise. I know that it is and I regret that it is. And more than regretting that it is, I still regret if the authority currency gets carried away by this”, he said.

“That’s not the role, to get carried away by noise. You have to go to the fundamentals. You have to see what’s really happening. You can’t make a decision based on the momentary fantasy of a stress that can happen” , continued.

The minister assured that the dialogue with the president of the Central Bank, Roberto Campos Neto, was never interrupted, despite the increase in tension between the Lula government and the monetary authority.

“Every day there is a conversation between the Treasury and the Central Bank, there are joint decisions to be made […] Communication has never ceased to exist and will never cease to exist, there is no way to govern without this tranquility of being able to pick up the phone and talk,” he said.

“It’s noise, we have to understand that nervousness takes over, there are many resources involved. But, honestly, I don’t see any reason to worry about it right now, let’s worry about the real problems, we have real problems. them if we know how to build a path, I don’t see any reason not to do it.”

The minister also spoke about the stress generated by the case of Americanas, a retailer that is undergoing judicial recovery after disclosing R$ 20 billion in accounting problems in January.

This week, Americanas revised its list of creditors, which further increased the debt amount to almost R$42.5 billion, with a good part of this increase related to debts with large banks.

The crisis was classified by Haddad as a “macroeconomic problem” because it represents 0.5% of the country’s GDP (Gross Domestic Product).

“A guy who makes a fall of 0.5% of GDP to 16,000 creditors. And we are still waiting for a pronouncement. Where is the solution? There has to be a solution […]”, he said.

“That came to light because of the interest rate [juros elevados geram dificuldade de financiamento]. You could go on for another three or four years in that mess there. At some point, it would show itself. Suddenly, the rate goes from 2% to almost 14% [ao ano], the body floats. The corpse that was there at the bottom of the sea rises and then everything is exposed.”

“I wonder: now it was a problem of fraud, but what about a month from now, two months from now, six months from now? Will the one who behaved nicely, paid his suppliers, registered his debts, will he be able to withstand this?”, he asked rhetorically.