Next government will have to discuss tax increase, says chief economist at Bradesco

Although inflation has been falling over the last few months, motivated by the reduction in the price of commodities on the international scene and by the exemptions promoted by the Brazilian government, the trajectory for prices and interest in the next year is still uncertain.

According to Fernando Honorato, chief economist at Bradesco, the uncertainty about the economic policy to be adopted by the government from 2023 onwards to control expenses and the trajectory of debt in relation to GDP (Gross Domestic Product) makes it difficult to forecast the dynamics of inflation. and the interest rate in the coming months.

“Without knowing what the government’s spending rules are, it is very difficult to predict where both the interest rate and inflation will park”, said Honorato, during a live held by the bank this Tuesday (4).

Based on the information available today, the economist predicts that inflation should settle at around 5% at the end of next year, at the ceiling of the BC’s target, making it difficult to start a process of cutting the country’s interest rate.

In the most recent Focus report, projections indicated inflation of 5% in 2023, with an interest rate of 11.25%.

Honorato also said that one of the main factors that has prevented Brazil from having significant economic growth over the last few years is the uncertainty about the evolution of the fiscal framework.

The successive changes in the spending cap in the last two years, said the economist, weakened an important pillar of the country’s fiscal sustainability.

He also said that the first measure to be adopted by the government in 2023, whether with Lula or Bolsonaro in the presidency, is to strengthen the fiscal framework, through economic rules for government spending and taxation that are consistent with debt stabilization.

Bradesco’s chief economist stated that, in order to accommodate an increase in expenses next year with Auxílio Brasil, the increase in the salaries of public servants and the precatorios (judicial debts won in court), the government will inevitably have to discuss the topic of increased taxation.

“Brazil needs to grow. The big agenda for the coming years is for the country to be able to grow in a sustained way, with inflation and low interest rates.”

The risk arising from the low economic growth scenario, he added, is that of generating the wrong political incentives in an attempt to stimulate activity through the wrong paths.

“The fear of staying too long in this low growth is that the political class has ideas not all in the direction of a good economic policy”, said Honorato.