Source: Época Negócios - São Paulo / SP - 26/07/2010

Against the grain of business consensus, two prominent economists, Claudio Haddad and Pérsio Arida, sparked a controversy over what the next president of the Republic should (and should not) elect as his most urgent goals Before an audience of entrepreneurs and technicians gathered at the beginning June at the 1st Forum of the Center for Public Leadership, in São Paulo, two leading economists defended a controversial thesis. "Tax reform should not be a priority," said Claudio Haddad, president of Insper, when referring to the list of priority tasks for the next president of the Republic. His statement was endorsed by Pérsio Arida, one of the minds behind Plano Real, now a partner at the investment bank BTG Pactual. For both, neither tax, labor, or political reform should be on that list. Tax reform would require constitutional changes, that is, it would need to pass the approval of the National Congress. There is the knot. “Today we are unable to collect less, because the accounts need to close. The reform would serve to make specific changes, tax one sector less to tax another. Or else, do the same across states. But there will always be winners and losers, and the latter have done and will continue to do everything to maintain the status quo ”, says Haddad. He suggests that the government first equate its spending so that, when it can collect less, invest in tax reform. The same should be done with two other reforms: politics and labor. “They are fundamental, but none of the problems that the current systems bring is an obstacle to economic growth that revolves around 4% to 5%. So I don't know if it would be worth it to spend political capital on them, ”says Arida. One possibility raised by Haddad is to replicate for the Union a model of successful spending control in the states: the Fiscal Responsibility Law (LRF). This would already help the federal government to control its accounts and prioritize strategic areas. Just as the LRF prohibits a state's debt to exceed twice its current net debt, it can be stipulated that when the government's net debt reaches 40% of GDP, an alert is triggered and the Union is prevented from spending more . "It is necessary to control the gross debt as well," says Claudio Haddad. Both Arida and Haddad argue that, even with labor laws that make hiring more expensive, no company stops investing in the country. At the same time, although it can be improved, the Brazilian political system works. There are free elections and the government - at a certain price, of course - is able to approve in Congress the issues it considers most relevant. Arida says the political agenda cannot be overly broad. It is necessary to focus fire on some issues and mobilize society there. He proposes that the new president put aside what demands changes in the Constitution and turn his forces to fight inefficiency in the public sector and the Social Security deficit. If you spend less and better - reducing trust positions and cutting unnecessary purchases, for example - there will be more money to finance infrastructure works and invest in the quality of education. In the last 8 years, the country has grown 3,6%, on average. Public spending, on the other hand, jumped at an annual rate of 6,9%. Pension and public spending are really critical areas. In the last eight years, Brazil has grown, on average, 3,6% per year. Public spending, in turn, increased at an annual rate of 6,9%, with inflation for the period already discounted. Net revenue advanced 5,9%. But isn't it good for the government to invest, to stimulate the economy? It would be, if spending was not so concentrated on the payment of civil servants' salaries, pensions and social benefits. Little, very little was reserved for investment. In 2009, only 6% of government expenditure was thus directed. At the same time, 25,8% of the total expenses went to the payment of assistance benefits and 12,2% to inactive people and pensioners. “In order to cope with so many expenses, the government takes the tax burden to very high levels. At the same time, the risk of default increases and the market charges higher interest rates to roll over the federal debt papers, ”says economist Paulo Rabello de Castro, president of SR Rating and a member of the recently launched Movimento Brasil Eficiente. Spending on social security is also unsustainable. Today, an amount equivalent to 12% of GDP is destined to the payment of pensions, almost double the percentage of elderly people (people aged 65 and over) in the country. In European countries, where protection for the elderly is great, the ratio of spending is one to one. For the time being, the theme of reforms has been mentioned more by presidential candidates than that of controlling public spending. But they are only superficial quotations, without detailed proposals. José Serra, Dilma Rousseff and Marina Silva, the three best placed in opinion polls, have already pledged to carry out tax reform. Serra, however, made political reform his priority. “Fernando Henrique didn't do it, neither did Lula, and I insisted that they do it. It is a reform that interferes with interests, but I will open my mandate with political reform, ”said Serra, in May this year. In 2010, Brazilians will work 148 days to pay taxes. In the previous decade, there were 90 days Promising drastic changes during the election campaign is not exclusive to Brazilian politicians. The problem arises when the candidate becomes president. It is not easy to start a government already paying for a change that affects the interests of senators and deputies, often political allies. The Lula government can be taken as an example. In search of a majority in the National Congress, he made the most unlikely party alliances and was not always successful. Just remember the defeat that led to the extinction of the CPMF, the tax on financial transactions. Dilma Rousseff has said that the tax change is the “reform of reforms”, but gives no clues as to how it will be put into practice. He says that this is the big step to increase the competitiveness of the Brazilian economy. In a recent meeting with businessmen, he reaffirmed that the PT government tried to send tax reform projects to Congress. It is true. The last one was approved, in November 2008, by a commission in the Chamber of Deputies. It was a timid text, but it showed advances in relation to the current system. The most striking was the unification of two federal taxes, Cofins and PIS, in a value added tax, VAT. Taxes such as ICMS, IPI and ISS, however, would continue to exist. Like other attempts, it ended in failure. The politicians' lack of interest in approving a tax-reducing measure plays against their own popularity. After all, this is a topic of national appeal and would undoubtedly help them to get votes. Brazil has a tax burden equivalent to 35% of GDP, well above that of countries like Chile (17%) and Argentina (23%), to stay in the neighbors. This percentage has continued to grow since the late 80s. It is already very close to that of developed countries, such as Germany (35,6%), which, however, provides quality public services, a reality quite different from ours. In 2010, Brazilians will need to work 148 days to pay all taxes due in the year. In 2001, 130 days of work were required.