Haddad’s fiscal adjustment measures have questionable viability, say economists

This Thursday (12), the Minister of Finance, Fernando Haddad, presented the new government’s first set of economic measures. Experts heard by CNN claim that the rules were not surprising, as the majority was already in the market account. In addition, many will be difficult to complete in the estimated time, they assess.

Gabriel Leal de Barros, partner and chief economist at Ryo Asset, said the minister himself recognized that, part of what was announced, there is more complicated viability. “These are complicated measures, to the point that Haddad has said he will pursue a primary deficit of 0.5% to 1% of GDP (Gross Domestic Product). He himself admitted that some points have questionable viability, ”he says.

Barros says that, from what is feasible, the minister is converging on projecting the market’s deficit. “Whoever has economic growth in a slightly stronger GDP, has a slightly smaller deficit. But those who are more pessimistic about the growth of the economy this year have a slightly larger deficit”, he assesses.

In the view of Rafael Pacheco, economist at Guide Investimentos, the announcement will help to contain the fiscal effect of the Transition PEC, and the maintenance of fuel exemption. “But, the government’s problem with the credibility of the fiscal policy will still continue until the new proposal for the replacement of the spending ceiling is in hand”.

Another question that remains, according to Pacheco, is whether the government will be able to fulfill its promise for the primary surplus and whether new measures to increase spending will not be announced. “In any case, if the government actually manages to reach this goal, the result would be very relevant for the market effect and in particular for monetary policy”.

“With a surplus of this magnitude, close to the deficit that was predicted, it becomes more likely that the Selic will fall this year”, bets Pacheco

market expectation

According to Barros, Haddad’s projection converged, because the market had already priced these shares. “This reduces the positive surprise of the announcement, as there was already an expectation of a deficit smaller than what was budgeted”.

For him, this expectation of a smaller deficit already included measures that were announced, such as the reenactment of PIS/Cofins on fuel.

“Now, the surprise on the revenue side, the focus of the announced measures, was the reduction of tax compensation for the exclusion of ICMS from the PIS/Confins base”, points out Barros.

Pacheco also evaluated that the measures announced by Haddad were not surprising, since they were very much in line with what the media had disclosed. “The market itself reacted little to the announcement. The promise of a fiscal adjustment that would take the predicted deficit of BRL 232 billion to a surplus of BRL 11 billion is the main fact”, he highlights.

Judicial repercussion

The package is focused on tax measures with a focus on the stock of administrative processes in the Tax Appeals Administration Council, the body that judges tax disputes.

Igor Mauler Santiago, president of the Brazilian Institute of Tax Law and Process (IDPT) and member of the Tax Law Commission of the Federal Council of the OAB, said that the return of the casting vote reveals the new government’s lack of creativity.

“Giving the tax authorities or taxpayers the advantage of a tie only displaces dissatisfaction. If it is to change, it would be better to exclude the fine – where there is doubt it is punishable – and keep the credit suspended, without the need for an injunction or guarantee, until the end of the lawsuit, provided that it is proposed by the taxpayer within 30 days after the end of the process administrative”, he argues.

Arthur Barreto, tax lawyer at DSA Advogados, the extraordinary installment program, “Litígio Zero”, apparently conceived along the lines of old programs like “Refis”, may be a step backwards after an important evolution in the tax transaction model.

“In this, there are more specific programs, for example, to cover taxpayers affected by the pandemic – it is necessary to prove the damage caused by the health emergency to the taxpayer’s accounts”, disputes Barreto.

“Minister Haddad justifies the reestablishment of the casting vote in CARF as one of the good international practices, taking into account the practice in other countries of the world. At the same time, he says there is no similar trial system in other countries. Now, if there is no similar system in other countries that contemplates the administrative judgment with the so-called casting vote, the justification for the measure is emptied?”, questioned Gabriel Neder, tax lawyer at Peixoto & Cury Advogados