Vision Brazil Investments analyst says that Bolsonaro government should prioritize tax reform

The market was slow to begin to take presidential candidacy seriously Jair Bolsonaro’s (PSL). The lack of people of the economic field in its surroundings and the mystification of its figure, as much for the military career as in the Congress, where it showed a statist and interventionist position, were reason of fear for the investors. 

Credit: Tayu: Amaury Fonseca Júnior e Fabio Greco, sócios fundadores da Vision Brazil Investments 

Everything changed with the arrival of the economist Paulo Guedes to the campaign of Bolsonaro. He quickly became Bolsonaro’s seal of quality with a liberal agenda that advocates privatizations and “radical” pension and tax reforms.

On the day he was announced as Finance Minister in an eventual PSL government, the Stock Exchange, which had started the falling trading session, rose.

Although the economic proposals are read as “a good letter of intent” and generate enthusiasm among young negotiating table players, the more experienced players in the financial market are more skeptical and cast doubt on the viability of such promises.

The general reading is that Guedes’ economic plan for the Bolsonaro government depends on a “silver bullet” to work out. He proposes to restructure the economic area, with two main agencies, the Ministry of Economy and the Central Bank, both formally and politically independent. 

Regarding the Pension Reform, which requires a consensus among market analysts, the plan foresees the change of the current payroll system (retired workers pay) by the individual capitalization accounts model (each worker will contribute during the life to support their social security benefit). And here come the first criticisms.

Vision Brazil Investments advice to institutional investors.

For Amaury Fonseca Júnior and Fabio Greco, founding partners of Vision Brazil Investments, a fund manager focused on institutional investors, to resolve the issue of public debt, any Government should prioritize tax reform.

The plan outlined by Guedes foresees the simplification and unification of federal taxes and the decentralization and municipalization of taxes.

According to economist stated Folha de S. Paulo, that he intended to recreate a tax according to the CPMF, which focuses on financial transactions, in addition to creating a single tax rate of 20% for individuals and legal entities – and apply the same rate in the taxation of the distribution of profits and dividends.

On the other hand, he was studying the elimination of the employer contribution to Social Security, which affects the payroll – which has the same rate of 20%. “To reach these 20%, public accounts would need to be very well balanced. This CPMF thing did not please the market,” says Júnior.

Bolsonaro and his allies, who have always argued that in an eventual government of the candidate the taxes would be reduced, hastened to try to explain Guedes statements, which even lowered the figure to 15%, but the damage was already done. The country has a classic problem of fiscal deficit.

In an interview to Jornal Nacional, Jair Bolsonaro once again addressed the theme: “The proposal of our economist Paulo Guedes is that anyone who earns up to 5 minimums will not deduct Income Taxes, and above that, a 20% table for all. the CPMF, I was one of those who voted against the CPMF in the past,” he said. The report contacted Paulo Guedes to respond to analysts’ comments, but received no response. 

Even among those who welcome the economic proposals of Guedes, they admit that their implementation is subject to a friendly political scenario. 

Although it has elected 52 MPs for the PSL and has the declared support of the ruralists and evangelicals, in practice it will be necessary to align many interests that directly affect the population that should not attend to everything impassible. “Politics is the art of the possible. Many of the ideas are outlined in a generic way and it is necessary to see if in practice it would be possible to approve them. This is the case of the tax reform, which involves different interests in the federative pact,” explains Ricardo Schweitzer, founding partner and stock analyst at Nord Research. “Privatization, welfare reform… are difficult issues in any coalition government.”

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