Author: Antônio Delfim Netto

Source: Valor Online, 04/03/2008

We will analyze the progress of the State (Union, States and municipalities) in the appropriation of the resources produced by the Brazilian economy after the 1988 Constitution and, particularly, since 1995. The success of the Real Plan and the government's rhetoric in its political exploration anesthetized society Brazilian. The latter allowed itself to be clipped softly and happily in the search for the Grail of stability.

The gross tax burden / GDP went from 23,4% in 1988 to 28,5% in 1995 and 35,2% in 2006. And it will not be surprising if it reaches almost 37% in 2007. The net public sector debt / GDP jumped from 30,0% in 1994 to 50,5% in 2002 and reduced to 42,8% in 2007. We propose to the reader a closer look at the consequences of the “tax horror” to which he was subjected unnoticed. Between 1995 and 2006, real GDP, that is, GDP measured by a physical index (price-weighted quantities) grew by 33%. Symbolically, if in 1995 society produced 100 “units of an imaginary GDP”, in 2006 it produced 133, which reveals an average growth in the period of 2,6% per year. In the same period, the Brazilian population grew 18% (1,5% per year). GDP per capita therefore grew at a meager annual average rate of 1,1% per year (2,6% minus 1,5%).

This tragedy hides an even more unpleasant fact: the fallacious hypothesis that the tax burden / GDP (which determines how much of the GDP is controlled by the government) has remained the same, which is not true. In 1995, with GDP = 100, the State appropriated 28,5 "units" physically. He returned them to society by paying his own expenses, interest on his debt, social security and social assistance. The taxpayer directly controlled only 71,5 "units" of GDP (100 minus 28,5) produced, which reveals the immense role of the government in global demand and in the redistribution of income. In 2006, with GDP = 133 and with a load / GDP of 35,2%, the State commanded the use (at its disposal) of 46,8 “units” of GDP (133 x 0,352). The taxpayer citizen therefore controlled 86,2 “units” (133 minus 46,8). The figures show that the physical increase of 33 “units” of GDP, carried out between 1995 and 2006, was divided as follows:

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Tax reform is not a technical problem

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The government appropriated and redistributed at its will 55% of the GDP increase in the period. It is not necessary to be a quantum physicist to deduce that the beneficiaries of the redistribution were first (under the FHC government) the “rentiers”, who finance the immense net debt / GDP, and then (under the Lula government, with a more solid moral justification) as well the excluded “old ones”. It is undoubtedly the largest redistributive operation carried out in a democratic country, anesthetized by governments that have successively improved the upper end (the “rentiers”) and the lower end (the “excluded”) of the income distribution, at the expense of “ exclusion ”of those who continue to work without understanding what happened to them!

Despite all this mass of resources, it is clear that the quality of public goods that only the State can produce (security, justice, education, health) has not improved. When it comes to the “efficiency perceived by the taxpayer in relation to public spending” we are ranked 127th among the 131 countries analyzed by the World Economic Forum in 2007.

The situation is even more dramatic when one takes into account the regulatory avalanche that accompanied the “redistributive revolution”. According to an estimate made by the Brazilian Academy of Law, this tragedy also has numbers. In the 226 months (with 22 working days on average) from January 1989 to the end of October 2007, 3.627.946 tax provisions (laws, provisional measures, ordinances and normative instructions) were issued by the three farm entities (Union, States and municipalities) distributed as follows:

Tax reform is obviously important, especially if it reduces the tax burden, but it must be understood that this is not a simple technical problem. It depends, in the federative regime (with a review chamber - the Senate - with veto power), on the solution of the most important political problem: the establishment of a certain regional balance. The “fiscal war” fetish is a good propaganda tool, but the ugly name only represents the “ad hoc” response of states with lower income levels (which have a majority in the Senate) in search of a better regional balance than the Federation forgot it many years ago.

As long as a serious, credible and credible program of permanent regional rebalancing policy has not been approved in Congress, it is unlikely that States will hand over what little “tax power” they have left. It is always useful to remember that, in a civilized federative system, states that today are “losers” are likely to deliver the same revenue by reducing the transfers they will receive from constitutional funds, to be created in favor of greater regional balance.

The number one priority of Brazilian society today should be the establishment of management programs at the three federal levels, which in some years (systematically and continuously) reduce the growth rate of public spending below that of GDP and improve the quality of services. Will candidates for mayors (in 2008) and governors and president in 2010 have the courage to propose them?

Antônio Delfim Netto is professor emeritus at FEA-USP, former Minister of Finance, Agriculture and Planning. Write on Tuesdays