Ciro’s team wants Selic based on core inflation, not IPCA

Main coordinator of the economic plan of President Ciro Gomes (PDT), economist and federal deputy Mauro Benevides (PDT-CE) says that the variation in the basic interest rate in Brazil, the Selic, should be based on the behavior of the core inflation, and not in the official index (IPCA).

“I can’t be creating interest rates, raising them to the level of prices, where it won’t have any effect,” he says, referring to the increase in energy prices caused by the rise of the dollar and oil and the low level of reservoirs.

According to him, an eventual Ciro government should introduce the change and also change Petrobras’ pricing policy.

“Do I need to raise the price beyond what makes a profit and allows investments to be made just because the financial system and pension funds, the majority in receiving dividends, want to?”

Benevides, 61, says fiscal consolidation will be the top priority of an eventual Ciro administration. He defends the introduction of a 15% tax rate on profits and dividends and a cut of up to 15%, on average, in tax subsidies to companies and sectors.

His team is also studying the reintroduction of a tax on financial transactions, but that would leave out transactions up to R$5,000, or 85% of Brazilians, according to his calculations.

The period in which Brazil grew the most since the Plano Real was when it produced primary surpluses [economia que o governo faz ao controlar a dívida pública], between 1998 and 2013. As of 2014, we entered the current morass of crises and low growth. For a new fiscal consolidation, it will be necessary to move in sensitive areas. What’s the plan? ​First, a conceptual issue: fiscal adjustment is not an end in itself. It means providing the State with the financial conditions to meet the population’s demands by making investments. It should not be “sold” as a cut. There is also no social investment without money.

Another point is that the spending ceiling [instituído em 2016 para limitar o aumento do gasto à inflação] of the Union commits a serious error, as it does not apply in practice. About 85% of the mandatory expenditure of the Union is Social Security and civil servants. Between 2017 and 2019, it grew above inflation, and it was necessary to cut investments even further so that the general ceiling did not burst.

That’s why we left R$ 100 billion [ao ano] in investments in 2010 to BRL 20 billion in 2021. The Brazilian adjustment is being made to reduce investment capacity.

The investment has to be linked to revenue variation, as we do in Ceará. Many say that public investment is poorly made in Brazil. But instead of solving this problem of focus, there is an increase in personnel and Social Security.

In any adjustment, you need to increase revenue and control spending.

First: we should create an income tax on profits and dividends. With a 15% tax rate. This is equivalent to R$48 billion reais a year.

Second: we have R$ 308 billion in tax relief. I’m not against it, but the amount in Brazil is too much. The Union can cut 15% of that, which gives another R$ 45 billion per year.

Third: reevaluate basic food basket products that do not pay PIS/Cofins, and which were included through lobbying. Swiss cheese, salmon and filet mignon are aliquot zero. There are 37 products under the same conditions. This is dissolved with an ordinary law and is equivalent to an additional R$ 6 billion annually.

And the spending ceiling, is it maintained? Yes, but investments must remain outside the ceiling and become linked to real revenue growth. It also has to consider real GDP growth. If GDP grows 2% and revenue grew 5%, an adjustment of another 2% can be made [no investimento].

In the 2018 campaign, Mr. he said he was in favor of reintroducing taxation along the lines of the CPMF. Does the idea continue? What are the criticisms of the CPMF? The people can no longer stand a tax. Second, especially in industry, with several stages in a production chain [nas quais a CPMF incidiria], this ends up generating an inflationary impact.

Today this is not a consensus in our discussion team, but at the time we proposed exempting transactions up to R$5,000, which would leave out 85% of the Brazilian population. Even so, we would have a collection of R$ 100 billion.

In this case, we would have to deal jointly with the reduction of the employer’s payroll rate. The employer’s 20% rate would have to be equal to that of the worker, from 8.5% to 11%. that would withdraw [da arrecadação] some R$30 billion.

This proposal is not a consensus among us and needs to be negotiated to obtain the approval of Ciro.

What is the design and size of the State that you defend? Would there be major privatizations? Privatization for us is not dogma. But it has to start with what is lacking. It’s no use selling Petrobras, which makes a profit, and keeping the loss-making ones. You have to focus on what is draining the Union’s resources.

But the State also needs to invest, to attract the private sector. In Ceará, we invested BRL 1 billion in the port of Pecém to attract investments of BRL 25 billion.

There is also nothing against public-private partnerships. On the contrary, they must be encouraged.

The Bolsonaro government failed in tax and administrative reforms, but delivered important changes in areas such as gas, sanitation and the autonomy of the Central Bank. How do you evaluate and what else can you do besides constitutional changes? It’s no use having a legal framework if the entrepreneur is not confident in putting his money. Entrepreneurs only allocate resources if they are sure that contracts will be honored, and Brazil has just broken that image by defaulting on precatório.

Worse, because, in addition to default, it will aggravate the fiscal, retaining R$ 800 billion in debt until 2026. This, plus the harmful impact on expectations that led to the increase in the Selic, with an impact [nos próximos meses] of BRL 450 billion in public debt.

It is no use having a legal framework in an environment where companies do not feel secure, neither with contracts nor with the expansion of activity and a reduction in the interest rate.

But what we can do is have a new, more focused social program, with a poverty criterion that meets the World Bank’s parameters. The program we are developing will also have counterpart requirements, but I cannot detail this yet.

Mr. you mentioned the increase in the Selic rate due to the PEC of Precatório, but the interest rate is going up because of inflation, right? This is another serious mistake, which became a consensus among you [jornalistas]. In 12 countries around the world, Selic is determined by “core inflation” [núcleo da inflação]. If it is 6.22% and inflation is 10.74%… Do you think the increase in energy is a function of demand?

Do you want to change this to determine the Selic? Sure. Why not? I will not have a monetary policy instrument, which is the interest rate. But I can’t be creating the interest rate, raising it to the price level, where it won’t have any effect.

The increase in energy prices is due to demand growth or because there is no water to supply [os reservatórios e as hidrelétricas]? The increase in fuel prices, which reverberated throughout the entire chain, is not related to demand.

Would the current IBGE inflation index, the IPCA, change? We are not going to change the inflation rate. But let’s take action based on international practice. Many countries in the world already define monetary policy based on permanent inflation, the “core inflation”.

Today we have two clear examples. Fuels, which Petrobras linked to the price of [barril] Brent and the exchange rate; and the energy [elétrica]. This is having repercussions in all production segments in Brazil. And are we going to raise the interest rate because fuel prices are going up?

What would be Petrobras’ pricing policy? Like any company, it sets prices taking into account costs, capital amortization, taxes and profit. That leaves the money for the investments that the company needs.

Do I need to raise the price beyond what makes a profit and allows investments to be made just because the financial system and pension funds, the majority in receiving dividends, want to? To serve them, will I have to increase the price beyond my profitability, which ensures my investment and my profit? Why that?

They will say that Petrobras is publicly traded and that it needs to pay dividends. All well. I want her to make a profit, but not in the magnitude of this moment.

Political fragmentation in Congress has been a major obstacle for the Executive. We saw what Bolsonaro’s speech gave, now hostage to the center. How to establish the relationship with parliamentarians to pass reforms?Very simple, as people hide in the electoral campaign what they are going to do. Because presidential candidates don’t have the courage to say what they’re going to do. They say they are in favor of income distribution, but how do you do it?

The first step is to translate all these things and make the national public aware of what will be done. Because if you win the election with everyone knowing what is going to be done, this convincing in Congress is much simpler.

In an eventual second round, there is even the improvement of proposals based on political agreements. The important thing is to arrive soon with the proposals ready.

X-ray

Mauro Benevides, 61

Professor and economist at the University of Brasília, with a doctorate from the Vanderbilt University (USA), he is a federal deputy for the PDT and was secretary of the Finance of Ceará for 12 years.