Guedes repeats Lula and Dilma in the economy, say economists and companies

Measures taken by the Minister of Economy, Paulo Guedes, repeat policies used by PT governments. Two examples: less taxes on the payroll of companies and reduction of the IPI (Imposto sobre Produtos Industrializados).

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

Guedes similar to PT governments

exemption: The maintenance of payroll exemptions by the current government preserves a strategy that was launched by President Dilma Rousseff in 2011, already in her 1st term, which started benefiting four sectors and, in 2014, reached 56 branches of activities.

Companies paid Social Security 20% of the payroll. They started to contribute 1% to 2% of their turnover.

At that time, the government gave up R$ 25 billion a year to receive from entrepreneurs the promise of maintaining and expanding employment.

Studies, such as the work Exemption from the Payroll on Employment: New Evidences, by Ipea (Institute of Applied Economic Research, a foundation linked to the Ministry of Economy) pointed out that the exemption did not improve the average employment rate.

But still, President Jair Bolsonaro maintained and now extended for another two years, until December 31, 2023, the payroll exemption, to face the economic crisis caused by the pandemic, since March 2020.

According to the Independent Fiscal Institution (IFI), of the Senate, 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.

Thus, the total cost of the measure to the public coffers, since its launch, will reach R$ 135 billion, 26% of which in the current government.

reduced IPI: Another instrument used by the PT government was the reduction of taxes in the industry. The measure was taken to face the global recession after the collapse of the housing sector in the United States in 2008.

First, in 2008, the government reduced the IPI tax rate for the capital goods segment by 30%, still under President Luiz Inácio Lula da Silva, to encourage investments in the productive sector. The measure favored 643 products in the machinery and equipment segment, at a cost of R$ 1.2 billion per year for public coffers.

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

In 2012, the Dilma government cut taxes and interest on cars, reducing IOF for financing, also extending the term to buy vehicles on installment, in addition to reducing the interest paid by automakers on loans taken from BNDES.

Now, Minister Guedes is cutting the IPI by 25% for the entire industry – with the exception of the automobile sector, which had a reduction of 18.5%. Despite the cuts, prices for cars and appliances have risen rather than fallen.

According to the economic team’s accounts, the changes adopted represent a decrease in the tax burden of BRL 19.5 billion for 2022, BRL 20.9 billion in 2023, and BRL 22.5 billion in 2024.

Measures affect Budget

Economist Juliana Damasceno, a researcher at the Brazilian Institute of Economics, at Fundação Getulio Vargas (Ibre/FGV) in the area of ​​public finance, says that these policies bring Paulo Guedes and PT governments closer because they represent necessary actions in times of crisis.

These are the so-called counter-cyclical 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 reinforce cash and, in the future, to be able to act again in a crisis confrontation.

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

She says that governments use an eventual higher collection 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 cause more inflation down the road. I see no difference in the use of these measures by the two governments.
Juliana Damasceno, Ibre/FGV

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

Industry advocates more planning

The industrial sector says that the tax cuts represent a means of reducing the Brazil cost and increasing the competitiveness of Brazilian products in relation to foreign ones.

But businessmen consider that these measures could come with long-term industrial policies and planning.

Reducing the Brazil cost is beneficial for the industrial sector, job creation, consumers and society as a whole. But, at the same time, the news that the automotive IPI was about to be reduced caused many customers to postpone purchases.
Luiz Carlos Moraes, president of Anfavea (National Association of Motor Vehicle Manufacturers)

Trade sees palliative measures

In commerce, too, there is a demand for more planning. For the economic advisor of FecomercioSP, Fábio Pina, the tax cut now, as before, represents palliative measures.

It has to discuss the reduction of the tax burden 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 we pay taxes, the less left for companies to invest.
Fábio Pina, economic advisor at FecomercioSP

Tax reduction for everyone

For the executive economy manager of the National Confederation of Industry (CNI), Mário Sérgio Telles, an advantage of the IPI cuts in this government in relation to PT governments was the option of reduction for the entire industry, without benefiting only some sectors.

But the Bolsonaro government also has its elected sectors. Last year, for example, he cut the IPI on video game consoles, accessories and machines, repeating what he had already done in 2020 and 2019, in a total of three tax breaks for games.

Sought after, the Ministry of Economy and former ministers of the PT governments Guido Mantega and Nelson Barbosa declined to comment.

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