Guedes says government made invisible administrative reform and concluded fiscal adjustment

Minister Paulo Guedes (Economy) said this Thursday (7th) that the government completed the fiscal adjustment and that the improvement in public accounts now allows tax exemptions, such as the reduction of the IPI (Tax on Industrialized Products), to try to reverse the slow pace of activity.

Guedes also said that the advance in digitalization, combined with pensions in the federal civil service, would have resulted in an invisible administrative reform – the reform proposal sent by the government to Congress will no longer be voted on in the current term.

report of sheet This Thursday showed that the Jair Bolsonaro (PL) government should propose a fiscal target that authorizes a deficit of about R$66 billion in 2023 and that the accounts will be in the red until, at least, 2024. In 2018, the minister reached say that it was “feasible” to zero the deficit in the first year of Bolsonaro’s administration.

“The fiscal adjustment took a year, a year and a half, and the fiscal adjustment is done”, said Guedes during a lecture to the financial market, part of the 8th Annual Brazil Investment Forum, a virtual event organized by Bradesco BBI.

Guedes also cited a lock created through the PEC (Constitutional Amendment Project), according to which municipalities are no longer able to spend when they reach 95% of tax revenues.

The Brazilian Central Bank would also have acted correctly, he assesses, having started the monetary tightening before the developed countries, to prevent sectorial price increases from turning into generalized increases.

“Central banks around the world fell asleep at the wheel. Ours woke up first, acted first, but inflation rose in the world, by the restriction of supply and, secondly, by the increase in demand. And now aggravated by the crisis of the Russian war invading Ukraine,” he said.

The minister also said that the performance of the economy will surprise again this year.

“I have been saying that Brazil has a growth dynamic already contracted. We made some important reforms. As they were carried out in the heat of the fight against Covid, the thing went unnoticed”, said the minister.

“We have two Marshalls plans ordered,” he said, noting that the Brazilian GDP (Gross Domestic Product) should grow around 1.5% to 2% this year.

The Central Bank projects that growth in 2022 should be around 1%. Some banks are more pessimistic, as in the case of Credit Suisse, which projects growth of just 0.2%.

The minister highlighted the resources that will be invested by the private sector, mainly through privatizations and the amounts collected from concessions. These investments will total US$ 200 billion over a period of up to 12 years. This includes concession projects in the areas of basic sanitation, ports, airports, railways, coastal shipping, among others. The possible privatization of Eletrobras and other state-owned companies, such as Correios, also mentioned by the minister.

Among the government actions that would have created a favorable environment for these investments, in addition to regulatory frameworks, the minister listed the special budget to fight the pandemic, with expenses going from 19% to 26.5% of GDP (Gross Domestic Product) , but then falling.

“Expenditure returned to 18.7%. And the forecast is that it will decline this year to up to 18% of GDP. We did what is usually done over 15 years, which is to reduce a deficit of 10.5% of GDP to zero. [resultado] of the government was practically a small surplus”, said the minister.

According to Guedes, the fiscal improvement had to do with the fact that the government stopped spending, except to fight Covid.

The other factor was what he called the de-indexation of government expenditures, citing the case of salaries paid to civil servants.

Guedes also mentioned the fiscal adjustment in the country in all spheres of public administration, mentioning 26 states and 5,500 municipalities that would have positive accounts.

In the morning, the minister included the geopolitical effects of the Russia-Ukraine war in the list of arguments in favor of privatization of Eletrobras.

For Guedes, the state-owned company does not have the financial conditions to make the necessary investments, which would increase the country’s energy vulnerability.

“Now there is a second crisis, a war, which has accelerated us towards the energy transition. I mean. The idea of ​​energy security, of geopolitical risk, is now a constant in our lives. It is a problem of the greatest gravity and seriousness”, said at an event about the privatization of Eletrobras at the TCU (Union Court of Auditors).