New tax regime and development

Image: Daniel Dan


The New Tax Regime must be put in its proper place. If restricted to it, the country runs the risk of reaping another short expansionary cycle

Lula's electoral victory, in October 2022, was hailed by an important part of the press, social segments and the political class. Many imagined that the new president would sail in a brigadier's sky. After the inauguration party, however, there was a coup attempt mobilized by crazed “patriotic” caricatures, destroying public property. The new President of the Republic also found the Chamber, the Senate, the Attorney General's Office and the Central Bank with the same commanders supported or appointed by the previous government. In the case of the Central Bank, it is a declared opponent. A hostile scenario, to say the least.

As if that were not enough, during the first quarter, the mainstream press and the “market” played their well-known game of sabotage, trying to impose an unsustainable fiscal regime in order to tie the hands of the new government. Minister Fernando Haddad was then scheduled to take the temperature and offer an alternative.

At the end of March, the assumptions and guidelines of the government's proposal began to circulate. In an innovative way, the New Fiscal Regime (NRF) proposed lower and higher limits for the expansion of primary expenditures, taking into account the oscillations of the economic cycle. At the same time, the government committed itself to primary surplus targets, guided by gradualism. In addition, new sources of revenue will be prioritized and tax exemptions will be reviewed. Not least important, a floor for investments was established.

It must be remembered that the New Fiscal Regime will not come alone. The instrument will be accompanied by a tax reform, which will institute the value-added tax and new rules for direct taxes, ensuring greater efficiency and progressivity to the tax system.

To understand the proposal, it is necessary to have the broader political chess as a guideline. In order to recover the State's ability to make economic policy, the government needed to show its flexibility, not bowing to the market, and, at the same time, delivering something palatable to the powerful.

The result is not a “fiscal adjustment” in the conventional way. It is a matter of replacing the Spending Ceiling rule, the biggest shave in the economic history of the Republic of Brazil, offering credible and minimally flexible rules. The proposal combines political skill and technical knowledge and, once approved by Congress, will allow the project that wins at the polls to pace its movements.

It is curious to note that the onus has turned against the adversary, since, by keeping interest rates high, the Central Bank will be responsible for raising the public debt/GDP ratio – the indicator that works as the altar of finance on which any projects are sacrificed. development alternatives.

The announcement of the New Fiscal Regime provoked intense debate. Many orthodox economists gave their endorsement, mixing caution with enthusiasm. At the same time, heterodox economists, sympathetic to the government, were critical, questioning the ambitious targets for the primary surplus and the expenditure expansion bands, considered low for compromising the desired increase in government investment and social spending.

However, it seems to us that the controversy loses sight of the most important thing: development. The government itself does not help to clarify the discussion by insinuating that the framework, by itself, is capable of accelerating growth. It is not!

The New Tax Regime must be put in its proper place. If restricted to it, the country runs the risk of reaping another short expansionary cycle, even favored by its positive effect on conjunctural indicators. For example, if there is exchange rate appreciation, inflation tends to decrease, but in the long run, the effort that the government has called “neo-industrialization” is compromised.

Where does the problem live? The New Fiscal Regime is a precondition for a national development agenda, but does not replace it. It is therefore not synonymous with development. Incidentally, in Brazilian economic history, development – ​​in its various theoretical and practical meanings – has never been produced from exclusive actions by the Ministry of Finance.

It is up to the Ministry of Finance and the Central Bank to define the “middle policies” (fiscal, monetary and exchange rate), which must be intertwined with the “end policies”, under the purview of other Ministries (industrial, agricultural, scientific, educational, employment, etc.): and with the “institutional policies”, responsible for guiding state-owned companies and banks (Petrobras, BNDES, BB, CEF, etc.), for adapting the regulatory framework to ensure investments in social infrastructure and urban areas, and by the policy of raising the minimum wage and revising the labor reform, to name a few examples[I].

The political articulation between the elements of this triad, necessarily coordinated by government entities and social actors, is responsible for welding together the structuring actions of a national development project. At the same time, it is necessary to define priorities for the short, medium and long term, based on a democratic planning effort, capable of taking root in the territory, promoting productive diversification, social inclusion and environmental sustainability.

This agenda, however, does not seem to have been outlined, leaving society adrift, while the President of the Republic launches important initiatives, but of limited impact, especially in the context of scorched earth left by his predecessor.

Finally, the New Fiscal Regime reconciles, in the field of economic policy, the short-term dimension with long-term needs, but requires a planning effort that is beyond its reach. Apparently we don't have a diagnosis of where we are and where we want and can go.

In times of disruptive technologies, international geopolitical and economic recomposition and collective perception of our profound inequalities, what do we aspire to as a nation? This question is not up for debate.

Development is not restricted to economic policy and the short term. It involves a cultural dimension, a language capable of exciting hearts and minds, an action that focuses on the future, combining what is desirable with what is feasible and feasible. Let us not forget: development with the expansion of democracy and reduction of inequalities – this is the challenge of this government, of organized society and of the next generations.

*Alexandre de Freitas Barbosa is professor of economics at the Institute of Brazilian Studies at the University of São Paulo (IEB-USP). Author, among other books, of Developmentalist Brazil and the trajectory of Rômulo Almeida (Mall).

*Ricardo LC Amorim, He is a postdoctoral fellow in economics at the Center for Social Studies at the University of Coimbra..


[I] We borrow here the analytical scheme proposed by Pedro Cezar Dutra Fonseca, placing “economic policy” beyond the commonplace use of macroeconomics manuals, in order to “encompass all State action that interferes or proposes to interfere in economic variables”, therefore not restricted to the short term. See FONSECA, Pedro Cezar Dutra. “Developmentalism: the construction of the concept”, In: Present and future of Brazilian development. Brasilia: IPEA, 2014, p. 30 and 46.

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