By PAULO NOGUEIRA BATISTA JR.*

A defense of minister Fernando Haddad

I woke up today wanting to defend Minister Fernando Haddad. It doesn't always occur to me. Basically, due to differences in temperament. In my humble judgment, Fernando Haddad errs on the side of an excessively conciliatory spirit. Concerned, sometimes a little too much, about serving the local plutocracy and the financial system, the Minister of Finance can make mistakes.

For example, the government was put in a tight spot when it proposed a relatively inflexible fiscal framework, with ambitious targets that are now taking their toll. The goals for 2025 and beyond were relaxed (rightly) and some escape valves were found. However, the zero deficit target for 2024 was maintained, with a tolerance range of just 0,25 percentage points of GDP up and down. The new Treasury projections indicate a primary result at the target floor, that is, a deficit of around 0,25% of GDP.

The problem remains, therefore, inducing the government to block or reduce essential spending, notably public investments, the funding of the federal machine and social transfers.

The reader, if he or she is more “realistic” (or more “conformist”?) will say that the “correlation of forces” in society, in the media and in Congress does not allow for anything very different. Could it be. However, “correlation of forces” is not an objective, fixed fact that is independent of the actions of those in power.

Unreasonable criticism of Fernando Haddad

But I leave these voluntarist outbursts aside and get into the subject I wanted to address today. Here's the thing: many of the criticisms of Fernando Haddad are unreasonable. They have now invented that the Minister of Finance is an inveterate taxer, coining the simple expression – “Taxadd”. The obvious objective is to reach not only Minister Fernando Haddad, but also President Lula.

I don't see how to support this criticism. Let's take a quick look at some statistics, without the intention of exhausting the subject or even covering all of its main aspects.

The global tax burden in Brazil (including central government, states and municipalities) has fluctuated between 31% and 33% of GDP since 2010. That of the central government, between 21% and 23% of GDP. From 2022 to 2023, the first year of the supposed “Taxadd” minister, the central government's burden fell slightly, from 22,4% to 22% of GDP.

Are there reasons to predict an increase in the global level of taxation in 2024? There is no clarity on this yet. We know that federal revenue increased by 8,7% in real terms in the January/May period compared to the same period in 2023 (including non-recurring factors) and by 5,4% (without considering these factors). These non-recurring factors include income from taxation of exclusive financial funds abroad and the calamity in Rio Grande do Sul.

Is this growth in revenue a problem? I don't think so. Would it be possible to obtain the adjustment of the government's accounts, insistently requested by the media and the financial system, simply by cutting expenses? Without increasing revenue and without touching the interest on the debt?

What the plutocracy and the traditional media seem to want is for the lower classes to make adjustments, cutting social transfers such as the continuous benefit for people with disabilities, supposedly to curb irregularities. They would also like the elderly to pay the bill for the adjustment, reducing the correction of retirements and pensions. However, maintaining generous tax exemptions and generous interest on public debt for the richest.

If Lula goes this route, I ask, won't he break his campaign promise of putting the poor on the budget and the rich on the income tax?

Privileges of the rich and super-rich

This leads directly to another important question: who is responsible for any increase in taxes? We are, obviously, facing a distributive issue.

The rich and super-rich want to maintain their various privileges – exemptions, exemptions, low taxation of wealth and high incomes, exorbitant interest payments, to mention the most obvious. They don't want to hear about making their contribution. When attempts are made to correct injustice, a chorus rises up in business circles and the media complaining about the government's “tax voracity”. That's exactly what's happening with Fernando Haddad. The discreet steps he has been taking are met with stones.

Those who pay taxes in Brazil, remember, are fundamentally the poorest, via indirect taxes, and the middle class, via personal income tax. The rich and super-rich live in a tax haven. The Tax on Great Fortunes, provided for in the Constitution since 1988, was never implemented. Taxation on assets (land, inheritances and donations, among others) is low by international standards.

And, thanks to the privileged treatment of capital income in Income Tax (profits and dividends exempt for individuals, basically proportional taxation of financial income, in addition to exemption for certain investments), the effective Income Tax rate on higher income brackets income is small, lower than that applicable to the lower middle class.

The Lula government has tried to face the problem. It increased the Income Tax exemption range for individuals, for example. Taxed closed and overseas financial funds. Fernando Haddad's initiative to invite economist Gabriel Zuckman, an expert on the subject, to formulate proposals for the G20 on taxation of the super-rich at an international level was also positive.

But more needs to be done. The last point, for example, should not serve as an argument or reason to postpone what can be done, at a national level, to increase taxation on the super-rich Brazilians. The assumption that they would flee to other countries is dubious. After all, where in the world would you find a country that offers such high financial remuneration on liquid assets and without real credit risk?

Fernando Haddad spent the government's political capital in its first two years, implementing a conventional consumption tax reform, which was already on the Congress agenda. It has its merits, but it does not significantly improve the regressive structure of the tax system and only has positive effects on the economy in the long term – in the period in which, as Keynes said, we will be dead.

Now, the government will perhaps have difficulty proposing and implementing fairer taxation of income and assets. The privileged celebrate, in particular.

They don't recognize it in public, however. On the contrary, they are promoting a campaign to brand Fernando Haddad as an enthusiast for increasing the tax burden…

*Paulo Nogueira Batista Jr. is an economist. He was vice-president of the New Development Bank, established by the BRICS. Author, among other books, of Brazil doesn't fit in anyone's backyard (LeYa)[https://amzn.to/44KpUfp]

Extended version of article published in the journal Capital letteron July 26, 2024.

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