June 26, 2022
Guedes repeats Lula and Dilma in economics, say economists and companies

Guedes repeats Lula and Dilma in economics, say economists and companies

Actions taken by the Minister of Economy, Paulo Geddes, repeat the policies used by Labor governments. Two examples: lower corporate payroll taxes and a lower IPI (Imposto sobre Produtos Industrializados).

It was in order to improve employment and reduce the prices of cars and appliances. Studies show that there has been no progress in the level of work because of this. Cars and appliances are getting more expensive, despite the lower taxes. Analysts say the measures may be necessary, but there is a lack of planning by governments to avoid damaging public accounts.

Guedes similar to Labor governments

Exemption: Preservation of salary exemptions by the current government maintains the strategy launched by President Dilma Rousseff in 2011, already in her first term, which began to benefit from four sectors, and in 2014, it reached 56 branches of activities.

Companies pay Social Security 20% of salaries. They started contributing 1% to 2% of their sales.

At the time, the government gave up R$25 billion annually to receive the promise from entrepreneurs to maintain and expand business opportunities.

Studies are like work Payroll exemption on hiring: a new guideof IPEA (Institute of Applied Economic Research, an institution associated with the Ministry of Economy) noted that the exemption did not improve the average employment rate.

But still the boss Jair Bolsonaro has maintained the salary waiver and has now extended it for another two years, until December 31, 2023To face the economic crisis caused by the epidemic since March 2020.

According to the Senate Independent Financial Institution (IFI), the extension of the payroll tax exemption will have an impact on the federal budget of R$6 billion in 2022 and R$9 billion in 2023.

This will bring the total cost of the measure to the public treasury since its launch to R$135 billion, 26% of which is in the current government.

lower IPAnother tool used by the Labor government was to cut taxes in industry. This measure was taken to counteract the global recession after the housing collapse in the United States in 2008.

First, in 2008, the government lowered the IPI tax rate for the capital goods sector by 30%, still under the President Luiz Inacio Lula da SilvaTo stimulate investment in the productive sector. This measure favored 643 producers in the machinery and equipment sector, at a cost of R$1.2 billion annually to public coffers.

Later, under the direction of Finance Minister Guido Mantega, during the Dilma government, the IPI on the so-called white line was reduced to four items: refrigerators, stoves, washing machines and six packs, with different cuts for each, from 50% to 100%. PT also prescribed an IPI for building materials in the same year.

In 2012, the Dilma government reduced taxes and interest on cars, reduced the IOF of financing, and also extended the term of purchase of cars in installments, in addition to reducing the interest that automakers pay on loans taken from BNDES.

Now the minister Guedes cuts IPI by 25% for the entire industry – Excluding the auto sector, which recorded a decrease of 18.5%. Despite the discounts and prices of cars and appliances Rise instead of fall.

According to the calculations of the economic team, the approved changes represent a reduction in the tax burden by R$19.5 billion in 2022, R$20.9 billion in 2023, and R$22.5 billion in 2024.

Measures affect the budget

These policies bring the governments of Paulo Guedes and the Labor Party closer because they represent the necessary measures in times of crisis, says economist Juliana Damaschino, a researcher at the Brazilian Institute of Economics, at Fundação Getulio Vargas (Ibre/FGV) in the field of public finance.

These are the so-called countercyclical measures – when the economy is bad, the government reduces revenue to stimulate the private sector; And in times of growth, the state increases revenue and reduces its presence in the economy to boost cash and, in the future, to be able to act again in the face of crises.

But she says the problem in Brazil is a lack of planning so as not to hurt public accounts in the long run.

She says governments use a higher pool at the end of the day to reduce taxes, even though there is no money in the budget.

I consider it risky to use fiscal space for exemptions and IPI cuts because these measures may have a higher cost, which will lead to more inflation in the future. I see no difference in the use of these measures by the two governments.
Juliana Damasceno, Ibre/FGV

For professor at Ibmec-RJ and researcher at Universidade Federal Fluminense (UFF) Caio Ferrari Ferreira, these actions are short-term and can act as a one-time incentive, but they do not bring sustainable growth in the long term, because there must be gains in competitiveness.

Industry calls for more planning

The industry says the tax cuts are a way to lower the cost of Brazil and increase the competitiveness of Brazilian products compared to foreign products.

But businessmen think that these measures can come with industrial policies and long-term planning.

Reducing the cost of Brazil is beneficial to the industrial sector, job creation, consumers and society as a whole. But, at the same time, the news that the auto IPI is about to be reduced has caused many customers to put off purchases.
Luis Carlos Moraes, President of Anfavea (National Association of Automobile Manufacturers)

Trade sees palliative measures

In commerce too, there is a demand for more planning. For FecomercioSP’s economic adviser, Fabio Pena, the tax cut is now, as before, palliative measures.

Lowering the tax burden must be discussed in a structural way. With a tax burden of 34%, much higher than the 23% in the 1990s, the public sector is pushing the private sector out of the economy because the more taxes we pay, the less companies have left to invest.
Fábio Pina, Economic Adviser at FecomercioSP

Lower taxes for everyone

For the Executive Director of Economics of the National Confederation of Industry (CNI), Mario Sergio Telles, the advantage of IPI cuts in this government in relation to PT governments was the reduction option for the entire industry, without benefiting only some sectors.

But Bolsonaro’s government also has its own elected sectors. Last year, for example, is IPI parts on video game consoles, accessories, and machinesto repeat what it already did in 2020 and 2019, in totaling three gaming tax breaks.

Subsequently, the Ministry of Economy and former Labor government ministers Guido Mantega and Nelson Barbosa declined to comment.