Analysis: Lula 3 Plan is a vague dream of re-editing Lula 2 and Dilma 1 in a ruined country

A government program already fits a lot. The sky is the limit and hell is full of good intentions when it comes to just the “guidelines” of a program, such as those that the PT and allies released this Tuesday (21), “a starting point for a broad national debate” .

In the economy, the “guidelines” are almost just a vague summary of measures taken by the PT governments, especially Lula 2 and Dilma 1, several of which went very wrong, but now with a strong green and techno-digital flavor.

More impressive is the lack of an accurate diagnosis and at least an outline of an emergency plan to deal with a rare, if not unprecedented, economic, fiscal and public administration crisis. If you don’t have a good shock plan for the first year, there won’t be three years after that.

There is no hint of priorities (everything will fit in the budget) or new ideas. To be specific, consider what PT and allies say about the turmoil of the hour: fuel.

fuel price

Lula da Silva wants to “Brazilianize” (sic) the price of fuel. The pricing policy will take into account the national cost of production, in order to contain inflation, and even so, it will stimulate investment in more capacity to produce diesel or gasoline. Pricing policy cannot be “internationalized and dollarized”.

It is implied that the lower national cost of production will allow some price fixing, set at a lower level than the international market. It is believed, therefore, that a company will sell its product at a loss, in the domestic market, and that it will invest in new productive capacity in order to have losses. It doesn’t seem possible.

It may be that the new government will force Petrobras to do so, by force or through new laws, as Jair Bolsonaro and the center want. Petrobras would then have fewer resources and less credit to finance investments in capacity, in addition to yielding less in taxes.

Would the government put money in Petrobras? Where do you come from? Besides, the question always remains: where is the account to show that investing in refining is better (more productive) than using the money for anything else?

inflation

Speaking of high prices, consider the “guidelines” for inflation. In addition to price controls and “regulatory stocks”, one should resort to “sectoral policies that encourage increased production of critical goods” — the State spends or intervenes so that more is produced.

In other words, there would be a “structural”, chronic or recurrent inflation, due to a shortage of national production of certain goods. To be kind, it’s debatable whether that’s the problem and/or your solution.

The PT governments’ attempt to increase production of “critical goods” was often a failure. Gigantic cost overruns made businesses inefficient forever, there was no project, there was environmental neglect or corruption (petrochemical plants, refineries, oil platforms, ships and hydroelectric plants like Belo Monte, for example).

interest and dollar

As it does not deal with such shortages, “the current government” … “implements a policy of high interest rates, which slows down the economic recovery and worsens unemployment, but with little impact on inflation, generated basically by a cost shock”. In other words, the monetary policy (of interest) is “of the government”, not of the Central Bank and, at least in this case, it is ineffective.

The government will also mitigate inflation caused by the exchange rate, because of the “dollar price”. Perhaps some regulatory change in the foreign exchange market will mitigate these jumps in the dollar. Furthermore, intervention in the exchange rate turned into a historical blunder in Brazil, from the 1950s to the devaluation of the Plano Real (1999). Moreover, this is also BC policy.

Will the government tell the BC what to do? Will the law of autonomy change? Are you going to give any guidelines through the National Monetary Council?

spending ceiling

A Lula government will revoke the spending cap and “review the current Brazilian fiscal regime, which is currently dysfunctional and lacking in credibility” (fact).

Spending cap is bad. In practice, it was fully effective only in 2018 and 2019. Although it contained a greater disaster in those years, it would burst and was demoralized in 2021 by Bolsonaro. PT and allies say they are going to put something in place, but they don’t even give a clue about what. But that will be the crucial problem of the first year of government, which perhaps defines its destiny.

The “fiscal regime” (rules for government spending and debt) will be “credible”, “sustainable”, etc. It is not clear how, as there will be public spending without limit or priority, given the “guidelines”.

minimum wage, expenses, credit

The minimum wage will increase and, with it, the INSS and assistance benefits (INSS expenditure has continued to increase since the PT years and takes up an increasingly larger part of the Budget). There will also be an increase in spending on health (they are the same in relation to PT years, as a share of the budget) and education (which have fallen), science and technology, etc. It will also increase public investment in works, in transport, housing, green energy, internet for all, in state-owned companies, in incentives for reindustrialization and even for agribusiness (even more incentives?).

There will also be cheap interest credit for the national company, in addition to interventions to increase “added value”, with support from state banks. Renegotiation of debts of families and companies is proposed. For companies, it already has almost every year, which causes a perversion: it is better not to pay tax and wait for periodic renegotiation. In addition, private banks will have “incentives” to renegotiate (will the government pay?).

In the PT years, cheap credit did not increase industrial production, which in fact stagnated in the Dilma years, raised public debt and often only served to lower the costs of large companies and mergers and acquisitions, making life easier for oligopolies. There is almost no mention of regulatory changes (laws, regulations, etc.) to facilitate private investment.

labor and tax reform

Speaking of reforms, the government wants to review labor legislation. What was called reform was, in fact, deregulation carried out by force, without thinking about rights (which tends to increase inequality). Going back to CLT is stupid. Having new labor laws, no.

However, as for tax reform, the “guidelines” don’t even understand the problem. They try to simplify and make taxation socially fairer, “charging the rich” (okay). But the reform goes much further.

It is a change to make the market economy more functional. That is, to standardize the taxes for different sectors as much as possible, without favors, in order not to distort the use of capital and labor. To give a simple example: an inefficient investment can be made just because it has tax favors: the company wins, the country’s economy does not.

PT and allies do not understand tax reform, because. And they do not mention trade opening and increased competition (which can reduce prices and costs in the medium term).

On the whole, one gets the impression that it is enough to go back to the “glorious years” of the PT governments, it is enough to turn the key back to “good”. Everything looks like a pedestrian version of national-developmentalism, with the clove smell of a dead man almost 50 years ago. It is possible to carry out leftist and not liberal reforms. For now, the PT has not even tried.