With only 0.6% growth per year over the past eight years, Brazil is a whale that has been hit several times and can no longer move, Economy Minister Paulo Guedes said at a CFT hearing. Guedes was called in to answer questions about what to do with the resources of the welfare reform economy.
For the minister, the pension reform is the first step to resolve the fiscal imbalance and “fix” the economy. He stressed that approving the reforms would amount to removing harpoons from the whale and that this agenda is superpartisan. “Brazil is an injured whale harpooned several times, which has been bleeding and has stopped moving. We need to remove the harpoons, fix what is wrong. It has neither right nor left. We need to fix the Brazilian economy,” said the minister.
Guedes explained that the pension reform has three dimensions. The first is to resolve the country’s fiscal imbalance by saving R $1.2 trillion in 10 years and resuming growth. The second is the resumption of private investment, including in social areas such as health, education and sanitation, and the third, the removal of inequalities through the withdrawal of privileges, and the liberation of future generations through the capitalization regime (in particular).
The minister stressed that, after the reform of the Social Security, the government intends to proceed simultaneously with the tax reform in the Chamber of Deputies, taking advantage of a proposal that is being dealt with in the House, and with the reform of the federative pact, which would start in the Senate. Guedes, however, said the strategy still needs to be defined by the government.
According to the minister, the government decided to prioritize social security reform to correct imbalances in the economy, before entering what it called the “positive agenda.” Guedes pointed out that the proposed tax reform envisages the creation of a federal value added tax (VAT) that would levy, with the optional adhesion of states and municipalities, and the review of exemptions, exemptions for certain sectors of the economy and deductions from the income tax.
Regarding the federative pact, Guedes repeated that the government intends to reduce the Union’s share of tax revenues, increasing the division with states and municipalities. He said he plans to split money from the pre-salt social fund, which is expected to yield $800 billion to $1 trillion ($3.2 trillion to $ 4trillion) over the next 20 to 30 years, and to be distributed between states and municipalities and federal government.
The minister explained that the government intends to make short-term stimulus actions, such as the PEF (Fiscal Balance Plan) to the states, sent on Tuesday to the National Congress, and withdrawals of the Social Integration programs and Public Service Heritage Formation. He, however, said these stimuli would be short-lived if Congress did not approve the pension reform.
“While we do not approve a powerful tax reform like this one of R $1 trillion of Social Security. Even small fiscal stimuli are perverse. We cannot make these movements without the correct foundations,” he said.