See the scenario and the challenges that the next president will face in the economy | Economy

Electoral elections are also taking place amid rising poverty and default rates.

At 13.75% per year, the economy’s basic interest rates are at their highest level in six years – but economists expect a small reduction in 2023 (to 11% per year).

After growing 4.6% in 2021, the Brazilian economy, in line with what happens in the rest of the world, is slowing down this year. Analysts predict that the slower pace will be repeated in 2023.

Candidates are also faced with a scenario of falling population income, although the unemployment rate has also declined in recent months.

  • Work and employment: what the presidential candidates’ government plans say
  • Economy: what the presidential candidates’ government plans say

Economy grows 1.2% in the second quarter

Months before the elections, the federal government increased social transfers for the poorest, through the payment of aid, and included categories such as taxi drivers and truck drivers among those benefited.

Given the current scenario, economists point out that main challenges for the next management in the economyregardless of who wins the election this year, are issues related to public spending and the tax system (how to collect).

In 2022, 12 candidates registered with the Superior Electoral Court for the presidential race. The visions of four candidates best positioned in the polls were cited.

Inflation and public accounts

Under the inflation targeting regime in force in Brazil, the Central Bank is responsible for setting the economy’s basic interest rates to control prices.

After soaring in 2021 and 2022, analysts estimate less pressure on prices in 2023, the first year of the new management. This slowdown has to do with rising interest rates and the “cooling” of the world economy.

The institution’s president, Roberto Campos Neto, has also called attention to the need to discuss how to serve the poorest population without generating uncontrolled spending, that is, avoiding an even greater impact on public debt.

Appointed by President Jair Bolsonaro, Campos Neto has a fixed term until the end of 2024. He has already informed that he does not intend to be reappointed.

The head of the monetary authority cited the increase in spending, in an election year, and the uncertainty about what will happen next year, the first of a new term, as a negative factor for the credibility of public accounts.

The BC has assessed that the extension of policies to increase public spending, such as the PEC Kamikaze – which circumvented the law and boosted social benefits such as Auxílio Brasil – “can raise the country’s risk premiums” (resulting in higher interest rates for the population) and generate inflationary pressure.

BC President criticizes uncertainties about public spending: There is work to be done against inflation

Faced with the need to increase spending to support the poorest, discussions began on what to do with the spending ceiling — a mechanism that limits the growth of most expenses to the inflation of the previous year.

The budget consultancies of the Chamber of Deputies and the Senate assess that, if nothing is done, the current spending cap rule tends to lead to an “administrative and political infeasibility” in the coming years, affecting the term of the future president of the Republic.

Aid for the needy population

Discussions on how to help the poorest also intensified during the election period. Between 2019 and 2021, 61 million Brazilians faced difficulties to feed themselves. With that, Brazil returned to the United Nations Hunger Map.

At the same time, the number of people with overdue accounts once again broke a record in Brazil, according to Serasa Experian.

  • President Jair Bolsonaro and candidate Luiz Inácio Lula da Silva have promised keep aid for the most needy population at the current R$ 600 (which, according to the rules approved by the National Congress, is valid only until the end of this year).
  • Lula has also promised to resume the policy of valuing the minimum wage and promoting the renegotiation of family debts. Bolsonaro talks about advancing the entrepreneurship and microcredit agenda for the most vulnerable.
  • Ciro Gomes has defended a reorganization of social policies, combined with taxation of the richest, to raise this amount to R$ 1,000; the candidate also wants to promote an effort to reduce indebtedness.
  • Simone Tebet foresees the creation of a savings account for informal workers similar to the Fundo de Garantia do Tempo de Serviço (FGTS) and promises to “eradicate hunger and misery” in the country.
Valdo: hunger, unemployment and inflation, which worries the majority of the population, were not the focus of debate

Valdo: hunger, unemployment and inflation, which worries the majority of the population, were not the focus of debate

Readjustment for servers and administrative reform

At the same time as the increase in social transfers is being discussed, analysts believe that it is necessary to rationalize other expenditures to prevent a sharp increase in debt – which would put pressure on inflation and interest rates.

And public servants’ expenses, the third largest in the budget (behind debt interest and Social Security), are one of the focuses of debate. In 2023, spending on civil servants is estimated at R$ 350 billion, exceeding the health and education budgets combined.

A study released in 2020 by the Millennium Institute shows that, in the previous year, Brazil was the seventh country that spent the most on public servants. This expense was twice that of education and 3.5 times health expenditure (3.9% of GDP).

  • After Minister Paulo Guedes cites an “invisible” reform by holding on to readjustments, President Jair Bolsonaro set aside R$11.7 billion for salary increases and restructuring of positions and careers in the civil service next year. His government has already sent a proposal for administrative reform, which is stalled in the Legislature, changing the rules for future servers and ending the stability of part of the careers.
  • Without giving details, candidate Luiz Inácio Lula da Silva defended that an administrative reform be carried out in his government, should he be elected. His government project makes no direct mention of salary readjustments in 2023, it only indicates the “resumption of policies for valuing public servants”.
  • In her government plan, Simone Tebet (MDB) mentions the need to promote an administrative reform that makes the State more “efficient, agile, productive and friendly to the citizen, with the objective of expanding and improving the offer of public services”, but does not give more details. The program does not talk about readjustments for servers.
  • Ciro Gomes, in his government program, proposes mandatory selection processes based on competencies for occupying positions and leadership roles in the public sector, in addition to a “law of quality of expenditures” for a new planning model. There is no reference to a possible readjustment for 2023.

The new administration will also have to face historical problems in the tax area – more specifically, in the way taxes are collected in the country.

The poorest part of the population, for example, continues to be penalized, as the weight of taxes on consumption is high in the country. In other countries, there is a higher incidence of taxes on income and wealth, with a greater contribution from the richest.

  • How much does the correction of the Income Tax table promised by candidates cost?

In taxation on consumption, considered a major obstacle to the country’s growth by specialists, there are 27 ICMS legislation in force. Several governments have already tried to implement changes in this legislation, but ended up not getting the necessary support in the National Congress.

At the same time, taxation on larger companies is around 34% in Brazil, a high level in international comparison – which affects their competitiveness in the global market.

To complete the scenario, citizens complain about the lack of correction of the IR table. Technically, the National Treasury assesses that an eventual correction would benefit the richest part of the population.

  • Ciro Gomes proposes to reduce subsidies and tax incentives by R$ 70 billion in the first year of government, recreate the tax on profits and dividends, unite five taxes on consumption in a single tax and tax large fortunes. He also indicated that he should raise the exemption range and create an IRPF rate above the current maximum, which is 27.5%.
  • Luiz Inácio Lula da Silva proposes a tax reform, which simplifies taxes and in which the poor pay less and the rich pay more; make the very rich pay income tax. He also proposes to expand the exemption range of the IR table.
  • Jair Bolsonaro talks about exempting workers who receive up to five minimum wages from paying income tax. In his government, he proposed a tax reform on consumption, which was stopped in the National Congress, and the resumption of taxation on profits and dividends (also awaiting a decision by the Legislature). IPI and import tax were reduced.
  • Simone Tebet proposes to implement a tax reform in up to six months, with the creation of VAT and a constitutional fund to compensate states and municipalities in the North, Northeast and Midwest, in addition to reducing the social security contribution to the range of one minimum wage for all workers, to encourage formalization. She does not cite changes in the table in the government proposal submitted to the Superior Electoral Court (TSE).
Income Tax: the lack of correction of the table and high inflation increase taxation of the poorest

Income Tax: the lack of correction of the table and high inflation increase taxation of the poorest

The article is in Portuguese

Tags: scenario challenges president face economy Economy

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