the financial drain

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By LADISLAU DOWBOR*

In a stagnant economy, transferring more public resources to financial groups that reinvest to obtain more interest constitutes a misappropriation of public resources

The basics are as follows: when financial rent yields more, that is, investment in bonds and various financial “products”, than opening a company and making a productive investment, the money flows to where it yields more: to unproductive gains. An example: when the government raises the basic interest rate (Selic) to 13,75%, this value will be paid by the government, to the private holders of public debt securities, basically the richest 10% of society, using the taxes that we pay. That is, these taxes, instead of financing education, health or infrastructure, go to the large financial groups, which we call “markets”.

The State did not go into debt to build schools, for example, or with Bolsa Família: 82% of the increase in public debt results from accrued interest. Without any productive contribution, these groups drain annually, in this modality alone, about 600 billion reais, that is, the equivalent of about 6% of the GDP. Those 6% of GDP could be turned into productive investments, but why would a wealthy man take a chance on the real market when he can earn 13,75% without risk and without effort?

Public indebtedness could be justified, for example, if it financed a program of technological support for family farming: it would result in higher productivity, more product, whose consumption in turn would allow for a return for producers, entrepreneurs in the food chain, and the public itself. State in the consumption tax and several points of the productive cycle dynamized. In our case, the fact that 82% of the debt increase is due to accrued interest means that we are simply feeding financial speculators. According to research by Carlos Luque (et al.) “Since 1995, the government has paid holders of public debt the equivalent of 5-7% of GDP per year, much more than the pension deficit or other spending items that are the subject of much discussion. in Congress and in the media”.

An unproductive drain of this size needs a narrative: it would be about protecting the population from inflation. It is obviously a farce, because only in an overheated economy, which needs to be cooled down, and therefore with inflation due to excess demand, would raising the rate on the public debt be efficient. The last year of significant growth in Brazil was in 2013, 3,0%.

In a stagnant economy, transferring more public resources to financial groups that reinvest to obtain more interest, instead of financing infrastructure, for example, which would boost the economy, constitutes a misappropriation of public resources. In 2022, between 600 and 700 billion will have been drained. In order to have an order of magnitude of what this amount means, let us remember the parliamentary battle that was, in December 2022, to obtain in Congress the authorization of 145 billion, with the Transition PEC, to face more critical situations of the population. This amount represents approximately 1,5% of GDP.

Another drain is tax evasion. SINPROFAZ estimates that “from January 1 to November 23 [2020], Brazil lost BRL 562 billion due to illicit practices to avoid paying taxes. These are resources that, if they had entered the Government's cash, could be reverted into public policies: in roads, school construction, or as now, in the pandemic, with more investments in health or helping the most vulnerable population with emergency aid ”. That's 7,6% of GDP at the time. Ordinary people cannot practice evasion, either because they are wage earners, and have a payroll deduction, or because they are consumers: the mass of the population spends the essentials on purchases and pays the taxes incorporated in the price. We already have here, adding public debt and evasion, underneath, a drain of 12% of GDP. Remember that the old Bolsa Familia represented 0,5% of GDP.

The interest rates practiced in Brazil, for individuals and legal entities, constitute a broader drain. Research presented in the headline of the State of São Paulo, pointed out that interest took one trillion reais from the real economy in 2016, which at the time represented 16% of GDP. 5, presents data on the volume of private credit granted to individuals and companies, with a total of 2023 trillion, divided into 5,3 trillion for companies in free credit, paying interest of 1,4% (23,1 to 3% in Europe); 4 trillion granted to individuals, with interest of 1,8%; and 55,8 trillion in earmarked credit. “The average interest rate on contracts ended 2,2 at 2022% pa”29,9 This average over the 6 trillion granted in 5,3 would result in a drain of the same order as in 2022, around 2016 trillion.

People in general find it difficult to “materialize” in their heads what represents one and a half trillion reais. But divided by the population, 215 million, it is a cost of 7 thousand reais for each one of us. It would also be enough to build 15 million popular houses. This volume of interest extracted from families and companies drastically reduces private consumption and business investment, also affecting employment, and contributing to the deindustrialization of the country. Does any of that go back into the economy? We do not have this data for Brazil, but the equivalent calculation in the United States, of Roosevelt Institute, is that they are only 10%. Mariana Mazzucato, in the case of Great Britain, calculates 15%. In any case, it is a gigantic unproductive drain, which generates the impressive fortunes of the Brazilian billionaires that the magazine Forbes presents, and also of the great international asset managers.

This institutionalized rentism is now legal, since a constitutional amendment in early 2003 removed from the constitution article 192 that typified usury as a crime: “Real interest rates, including commissions and any other remuneration directly or indirectly related to the granting of credit, may not exceed twelve percent per annum; collection above this limit will be considered as a crime of usury, punished, in all its forms, under the terms determined by law.”

Remembering that the general principle in the Constitution states that “the national financial system [will be] structured in such a way as to promote the balanced development of the Country and to serve the interests of the community”. This is not about generosity, because the money the bank lends us is ours, and the public debt money comes from our taxes. People also don't have a clear vision of usury or loan sharking. In France, for example, the prohibition of usury is in the consumer code, defined as charging an interest rate that exceeds by one third the average rate practiced by financial institutions in the previous quarter. For example, a loan between 3 and 6 euros, where the average interest rate on the market is 7,35% per annum, cannot exceed 9,80%. For an amount above 6 thousand euros, where the average annual rate is 3,70%, it cannot exceed 4,93% per year.

It is important to note that only in Brazil is it used to present interest rates in the private sector as monthly interest. This was inherited from the hyperinflation phase, when monthly variations were so high that interest was also calculated on a monthly basis. Hyperinflation was overthrown in 1994, but the banks continued to present the interest rate per month, which makes it comparable to what is charged in the rest of the world, only per year. In the Constitution, the 12% real interest obviously referred to interest per year, and the Selic rate, interbank interest and interest on the public debt, are also calculated as annual.

A practical example: Santander sent this offer to my cell phone, which I transcribe verbatim: “Santander: Ladislau, great news for times of suffocation! Your account limit interest rate has dropped to 5.9% am, until 31/01/2023.” I didn't ask for this offer, they invaded my cell phone, I imagine it reached millions, and that many people in distress could think that it is really “great news” and hang themselves in an initial loan that they will never be able to repay. Interest per month of 5,9% is equivalent to practically 100% per year (98,95%). The bank works with misinformation, few people will know how to calculate the annual compound interest.

No wonder we have 79% of families in Brazil mired in debt, working to pay interest, and often just lengthening the debt. About a third are in personal bankruptcy. There is no control, the Central Bank is “autonomous”, that is, controlled by the groups it should regulate. The ease with which financial groups appropriated the regulatory institution, so important for financial resources to serve the economy, and not the other way around, is very reminiscent of the ease with which they managed to remove Article 192 of the Constitution: they did not need a constituent, they only relied on the financial interests of deputies and senators.

Remembering that between 1997 and 2015, corporations were authorized to finance election campaigns; only at the end of 2015 did the STF realize that the first article of the Constitution, “all power emanates from the people” had been violated, and the authorization was revoked. But the damage was already done. In the United States, where a similar authorization was adopted in 2010 and is still in effect, Americans comment that "we have the best congress that money can buy". The Central Bank becomes a vehicle for transferring public resources to the elites.

Another drain is represented by tax waivers. According to a report by the Chamber of Deputies, “tax waivers granted by the Union to parts of society should reach R$ 456 billion in 2023, or 4,29% of the Gross Domestic Product (GDP). The total is slightly higher than what the government spends annually on paying staff”. Here we are also dealing with groups that, like all of us, use public resources (public universities, paved streets, etc.) but do not pay taxes. It's not exactly a leak, it's money that stops coming in. With a tax burden of around 34%, our problem is not a lack of resources, but where they are channeled, and that includes non-payment of the tax due.

Some drains are more outrageous. But in general, what we call the elites, a collusion of national billionaires with large transnational corporations, use the State (which they criticize) to drain the State's own resources, and facilitate the unproductive appropriation of the resources of families and companies . So far we have, by orders of magnitude, and with variations in composition according to the years, 6 to 7% of GDP drained by public debt, around 6% by tax evasion, around 15% of GDP by extortionate interest, more than 4 % for tax waivers. That is, by draining what came in, and by not entering what is due, the imbalance is around 30% of GDP. No wonder the economy is stagnant. If the GDP does not show even weaker numbers, it is because financial profits – rent without a productive contribution – and exports of primary goods appear as “production”, despite being equally drains.

Since 1995, profits and dividends distributed in Brazil are tax-free. That is, the 290 billionaires who appear in Forbes in 2022 are tax-exempt, with the justification that the companies they own have already paid them. Of course, the capitalization of the company and the enrichment of its shareholders, as individuals, are different things, but the result is that the very rich are simply exempt. I, as a university professor, pay 27,5%. With the approval of the exemption in 1995, not paying taxes became legal. In the case of land tax, the ITR (Rural Territorial Tax), the obligation is in force, but the tax is simply not collected, as a result of the political weight of agribusiness, both in its modern corporate dimension and in that of traditional latifundia inherited from the past. It would fit here to add land grabbing, totally illegal, but tolerated.

The same political weight (national and international) allows production destined for export not to pay taxes. This is the Kandir Law, from 1996, which exempts from taxes the production of primary and semi-manufactured goods intended for export. That is, at the same time that Vale was privatized, for example, placing it in the hands of national and international private shareholders, the drain of ores, which constitute the country's natural wealth, started to generate dividends, but not revenues. for the State. Primary exports, in their various dimensions, now have an advantage over production for the domestic market, but generate few jobs, many environmental disasters, and greater dependence on the interests of the world's giants in commodity intermediation. The general reprimarization of the economy that we have experienced in recent years, as well as the country's deindustrialization, are directly linked to this institutional framework.

The case of oil is particularly instructive. Brazil controls the complete oil cycle: technology, extraction, refining, distribution, the petrochemical industry. But first of all oil is in national territory, it is a wealth of the nation. Countries that don't have oil are forced to pay international prices. But Brazil, which controls the complete cycle, has no reason to submit to international price variations, which result from political choices made by a restricted group of corporations.

Privatization, by placing control of companies in the hands of national and international shareholders, is equivalent to denationalization. Profits that previously funded reinvestment in the company and public policy financed by corresponding taxes have largely turned into dividends, themselves tax-free. It is an appropriation of public goods, in the name of efficiency and the fight against corruption. The population that now pays twice as much for the gas cylinder or to fill the tank of the car is feeding shareholders, essentially financial groups.

It would be a major challenge to calculate how much is lost due to unpaid taxes, adding the exemption of distributed profits and dividends, the losses that result from the Kandir law, the non-applied ITR, or the increase in prices of oil derivatives that raise living costs. of the population and the production costs of companies – the cost of energy penetrates countless sectors and multiplies price increases – without a corresponding productive contribution. Adding the drains, due to interest on the public debt, tax evasion, bank loan sharking, tax waivers, exemption from profits and dividends, exemption from primary exports (Kandir law), and non-payment of the ITR, and even considering that part of the financial gains goes back to the real economy, the fact is that the whole makes the country's economy unfeasible. Today, only the primary export sector and the financial market function.

The so-called “markets” and the right in general call for fiscal balance, that is, limiting 'spending' on education, health, infrastructure and the like, in reality investments in people and in the real economy, while generating exactly the deficit by draining the resources from the public sector, families and productive companies, in order to benefit from profits on primary exports and financial intermediation, which they call 'investments'. Claiming that an unproductive elite diverts 25% from the real economy is today a conservative figure.

Let us remember that the country's distributive phase, from 2003 to 2013 (the neoliberal offensive already started in 2014), ensured jobs, food and an average growth of 3,8% per year, even with the world crisis of 2008). The challenge that lies ahead is that of redirecting our resources towards the real economy, greater household consumption, greater productive investment by companies, and expansion of social policies and infrastructure by the public sector. Who pays for it? Just moderately reduce the drain of the unproductive.

This is not just about the exorbitant profits of the unproductive 1%. Rentism undoubtedly benefits the 1% or 0,1% that own the bulk of financial investments (which they call “investments”), but it has also generated an upper-middle class and a middle-middle class that in other times would invest in companies. effectively productive, producing shoes, butter or bicycles. Today, as it pays more to make financial investments, with zero risk and little work, capital that was once productive has migrated to unproductive rent.

The country's deindustrialization is directly linked to the redirection of savings towards financial investments instead of productive investments. And with that, a strong privileged social layer was generated that calls for high interest rates and the highest possible financial returns, forming a broader political base that blocks the necessary reforms. In other times they would open a company, generate products, jobs, profits and taxes. Today they are “investors”.

*Ladislau Dowbor is professor of economics at PUC-SP. Author, among other books, of A era do capital improvutivo (Literary Autonomy).

 

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