By PEDRO MATTOS*
The government backs down, but does not deliver on the main issue and sets a trap for the opposition
1.
The package of tax measures announced by Fernando Haddad has generated reactions from various sectors. Those who voice the interests of the ruling classes have a fairly unanimous opinion: the cuts are welcome, but insufficient; while the income tax exemption for those who earn up to R$5 is widely rejected.
However, there is a debate among the popular sectors about the announced package. On the one hand, there are those who are more aligned with the government, who are very enthusiastic about the income tax exemption. The triumphalist tone, which hides the measures that are contrary to the interests of workers, makes what was actually a defeat seem like a victory. On the other hand, there are popular sectors that denounce the set of measures as simply a neoliberal package. In this reading, the income tax exemption and other fair measures included in the package would be mere cover-up to “deceive” the people.
Between these two poles, one with an orientation fully subordinate to the government and the other with sectarian oppositionism, we propose a more nuanced analysis.
2.
First of all, it is necessary to recognize that the announcement of the cuts is a defeat for the government. This measure is the result of pressure from neoliberal sectors, which imposed a reduction in the expansion of public spending, an aspect that has determined economic growth, increased income and reduced unemployment.
It is worth noting, however, that in this retreat, the government did not deliver to the neoliberal sectors what they most desired: the decoupling of social spending. The BPC remains tied to the minimum wage, the constitutional floors for health and education were maintained and the real appreciation of the minimum wage was significantly restricted, but not fatally wounded.
Even before the Lula III government, we have been saying that the neoliberal model had been deepened in the offensive that managed to regain political hegemony, first through the coup, and then through the alliance with neofascism. As a result, the mechanisms available to the government to moderate the model, as was done in previous PT governments, would be less effective.
The pressure that neoliberal sectors exert on the government is not restricted to the political scene. The combination of greater financial openness and the independence of the Central Bank within the framework of our economy, in which inflation is highly linked to the dollar, has given the market even greater power to exert economic pressure. Through the foreign exchange market, it favors the appreciation of the dollar and puts pressure on inflation; through the public debt market, it pressures for higher interest rates and reaps the results with a Central Bank that is captured by the financial sector and oblivious to the political project validated at the polls.
The impact of this is enormous. Higher inflation is already bad for workers. Added to this is the high level of debt and the commitment of income to paying interest, which is only increasing. The pressure on people's purchasing power is on both sides and this helps to understand why, even with a decrease in unemployment and an increase in income, the government has struggled in terms of approval.
Added to the political and media pressure, this economic pressure, stronger in the current phase of the neoliberal model than in the first Lula governments, forced the government to retreat. Added to this is the fact that the government itself has neoliberal sectors within it, given the broad front tactic to confront neofascism. Therefore, in addition to the external pressure on the government, there is internal pressure from these neoliberal sectors, which threaten to move again towards an alliance with the neofascist camp.
In a recent note from the Popular Consultation, it was stated that, if fiscal adjustment were necessary, it should not be done at the expense of workers. In other words, the objective was to politicize fiscal adjustment and the distributive conflict within the public budget, to block measures that penalized workers and prioritize measures that would affect the richest. And in his own way, Lula acted in this direction.
He stated more than once that the market and other powers would also have to make their share of sacrifices, which could not be focused solely on the rights of the working people. This perspective of “distributing” the cost of the adjustment and clearly pointing out that the richest must also contribute was expressed in the announcement of the fiscal package.
Among the measures in the fiscal package, three have the most direct impact on workers: a ceiling on the real increase in the minimum wage; a reduction in the number of beneficiaries of the salary bonus; and greater control over the provision of social programs, especially the BPC for people with disabilities. Three other fair measures are related to the legislature and the state bureaucracy: restrictions on parliamentary amendments; combating excessive salaries among the elite of public servants; and reforming the military pension system.
3.
The government, therefore, backed down, but did not deliver on what was most strategic and still managed to politicize the adjustment to some extent. And with regard to this last aspect, the most important was the announcement of the exemption from Income Tax for those who earn up to R$5. This measure, which a priori does not have the objective of contributing to fiscal sustainability, was announced together with the package of spending cuts. And the income tax reform bill that includes this measure was presented to Congress together with the bills that include the cuts. This move is not just intended to “deceive” the people, as some believe.
This announcement is part of the politicization of the distributive conflict in the public budget. This measure seeks to impose a “sacrifice quota” (as Lula says) on the wealthiest in the midst of the adjustment, and this was widely announced by the government. Since workers will be the ones most penalized by the cuts, it is only fair that a counterpart, at the expense of the wealthiest, be implemented. This was the way found to include the wealthiest in the fiscal adjustment.
Thus, the government smuggled into the debate on fiscal adjustment a popular measure with the potential to transform government revenue, which could even open up more fiscal space for future policies. In doing so, it diverted the debate from cuts to exemptions and placed neoliberal sectors in a difficult position. If the measure is not approved, it will represent a burden for neoliberal and neofascist sectors.
If approved, it will increase the income of around 26 million people, who will benefit from the exemption. And, in addition, they are concentrated in an income bracket (2 to 5 minimum wages) that is currently disputed by the neo-fascist camp. In addition, tax reduction is a flag that is waved to exhaustion by the neoliberal and neo-fascist sectors, obviously with the aim of favoring the richest. How will they position themselves in the face of a tax reduction targeted at the popular sectors and at the expense of the richest?
In short, the announced package was a retreat by the government and not a victory, as some would have us believe. But in this retreat, the government avoided handing over to those who were pressuring it the strategic objective they were pursuing: the decoupling of the BPC from the minimum wage and the end of the constitutional floors for health and education. These objectives, which aim to dismantle the social nature of the 1988 Constitution, are historical banners of the neoliberal camp and another step in the deepening of the model.
In addition to not delivering the disassociations, the government contributed to the politicization of the issue and set a trap for neoliberal sectors with the proposal to exempt Income Tax.
Those who denounce what was done as a mere neoliberal package with a miraculous measure of exemption from Income Tax to deceive the people cannot see beyond the measures themselves. They underestimate the limits imposed by the neoliberal model (which the government and even the neodevelopmentalist front do not aim to overcome) and the limits of the government itself (based on the alliance with neoliberal sectors to confront neofascism). But above all, they seem to underestimate the policy.
*Pedro Mattos é PhD student in economics at Unicamp and member of the national board of Consulta Popular.
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