Nobody knows how much Nova Indústria Brasil will cost – 03/08/2024 – Marcos Mendes

The New Industry Brazil Program (NIB) was announced promising disbursement of R$300 billion in four years. An average of R$75 billion per year.

This value began to be associated with the cost of the program. This, however, is a wrong interpretation. The R$300 billion refers to disbursements under the program. Disbursement is not synonymous with cost.

In a loan made by a public bank, for example, the amount disbursed is paid back by the debtor throughout the life of the loan, so it does not represent a cost. The cost is the possible subsidy in the interest rate or the loss caused by default.

Several of the NIB instruments involve costs for the Treasury or state-owned companies, but these have not been disclosed by the government. Differentiated tax treatments — known as “tax expenses” — represent lost revenue.

Margin of preference for national suppliers in bidding means that the government accepts paying more, disqualifying the cheapest proposal from a foreign supplier.

Similarly, the requirement for national content in the acquisition of inputs will increase the costs of companies such as Petrobras, and ministries such as defense and health, which are the focus of the “industrializing mission”. There are subsidized credit lines and budget subsidies. Credit guarantee funds have a tax impact when they are formed and when they record losses due to default.

None of these costs were projected and announced by the government. A bad start for those who swear daily that from now on public policies will be evaluated. How can you evaluate if you don’t know how much it will cost?

The announcement of the R$300 billion itself says little about the power of the policy, because part of the loan disbursements from public banks was already programmed and would occur even if there were no NIB. The billion-dollar announcement appears to have had the aim of giving the program a grandiloquent air, generating more misinformation.

There is data on the partial cost of industrial policy measures that already exist today and that precede the NIB. The table below compiles the cost of tax expenditures projected by the 2024 LDO related to incentives for manufacturing (cheaper inputs or produced goods), research and development and innovation.

The selected items represent a very restricted concept of industrial policy, which does not take into account regional development policies or incentives outside the manufacturing area, such as those aimed at the services sector.

Even with this restricted concept, current tax expenditures on benefits to manufacturing total R$52 billion per year. If we add the cost of the Manaus Free Trade Zone (ZFM), which, although it is a regional policy, is also very focused on encouraging manufacturing, we reach R$85 billion per year.

Note that these values ​​are restricted to one type of incentive, tax expenses, which are in addition to others also in force and not included in the table, such as local content requirements and credit subsidies.

Almost all programs are of indefinite duration. Some, like ZFM, have a very elastic deadline to end. Others, such as incentives for the automotive sector, have not faced difficulty in being renewed upon expiration.

The obvious questions are: are all these tax expenditures efficient and worth maintaining? Will any of them be extinguished or reformulated to form the NIB?

Piling policy on top of policy, without evaluating or quantifying costs, does not seem like a good way to go.

LINK PRESENT: Did you like this text? Subscribers can access five free accesses from any link per day. Just click the blue F below.