Guedes recycles promises for 2nd term and talks about fast combating inflation

The Minister of Economy, Paulo Guedes, said this Monday (11) that Brazil will fight quickly and effectively against inflation, which had the highest variation for the month in 28 years in March. In 12 months, the index accumulates a high of 11.30%.

In an event to commemorate the 69 years of Acim (Commercial and Business Association of Maringá), the minister also launched promises of what would be economic measures in an eventual second term of Jair Bolsonaro (PL) as president of the Republic.

Guedes mentioned the reduction of taxes for companies and the launch of the Green and Yellow Card, a proposal that was part of the government program in 2018, but never got off the ground due to political resistance. The modality would allow hiring workers paying less charges.

Before announcing possible pillars of the campaign, Guedes showed confidence in the BC’s work to fight inflation, despite constant revisions of projections by market analysts, increasingly pessimistic with the pace of price increases.

Inflation has been seen by the political wing of the government as a negative factor for the president’s re-election campaign this year.

According to the minister, the monetary authority “already put the interest in place”, and the base rate is even “relatively high” in real terms. “Brazil will have one of the most effective and fastest combats [à inflação]. We trust it,” he said.

With the escalation of inflation, the Selic left the historic floor of 2% per year and is now at 11.75%, but the market already sees the rate close to 14%, although the level is not a consensus.

The perception of a more drastic tightening grew after the president of the BC, Roberto Campos Neto, said, also on Monday, that inflation in Brazil is “very high” and that last month’s IPCA (National Index of Consumer Prices) was a “surprise” for the monetary authority.

Guedes said that, while other central banks “slept at the wheel” and were slow to raise interest rates, the Brazilian BC “moved before and has already put the interest in place”. “But world inflation is there and we are going to fight it, we are going to beat it too,” he said.

Behind the scenes of the government, the BC’s stance has already been criticized. While the government is a constant target of warnings from the monetary authority due to the risks on the fiscal side, a member of the economic team pointed out that the BC spent a good part of 2021 with negative real interest rates (nominal rate below the variation of inflation), which ended up stimulating the heating up of the economy and paves the way for price acceleration.

Guedes, in turn, said that inflation is a global challenge and that the BC led by Campos Neto has been effective. “In Brazil, at least, I am convinced that we are going to overthrow it sooner than several advanced nations,” he said.

To businessmen who attended the event, the Minister of Economy also gave signs of what he hopes to do in a possible second term of Bolsonaro. On Monday, the president said that Guedes “in principle, remains” on his team, if he wins the elections.

In this scenario, the minister indicated that he intends, “in the first month of the new government”, to seek once again the approval of the Income Tax reform, which had the approval of the Chamber of Deputies, but stalled in the Federal Senate.

He highlighted that, with the proposal, there would be a reduction in the tax burden of companies, in addition to the resumption of taxation of profits and dividends distributed by 15%.

“Resisting this is foolish. How are you going to explain to an employee who pays 27.5% of Income Tax that you, who are the owner of the company, are rich, take the money home and pay much less than he does? ?” he asked.

Guedes also signaled the resumption of the proposal for the Green and Yellow Card, which was already part of the government program in 2018, but never got off the ground due to political resistance.

The model intended by the economic team allows the hiring of formalized workers without the need to pay labor charges (the largest of which is a 20% charge on the salary for Social Security).

The employee hired through this contract would have his retirement linked to a capitalization scheme, through which the worker contributes to an individual account, which in the future will bear his benefit. This proposal was also rejected at the time of the Social Security reform.

“Brazil has the cruelest of taxes, this is a weapon of mass destruction”, said Guedes, regarding the collection of the contribution on the payroll.

The minister’s idea is to institute a “capitalization regime with a tax that would reduce labor costs”. He did not directly mention what the tax would be, but historically Guedes has been an advocate of a transaction tax, compared to the former CPMF (Provisional Contribution on Financial Transactions) by critics of the measure.

“Let’s try again, we don’t give up,” said the minister. “The program is the same, only now deepened.”