According to the businessman, the ideal level in Brazil is the center of the inflation target plus 3 to 4 pp; today, it is 7 points above
Interest rates are high in Brazil because of fiscal imbalances. This is what the businessman says Jorge Gerdau Johannpeter87 years old. For him, the current government lacks, Luiz Inácio Lula da Silva (PT), interest in discussing spending cuts. On the other hand, Congress has already shown that it does not accept new tax increases.
The result, he says, is growing inflationary pressure. And the Central Bank has no other option than to keep interest rates at current levels to prevent price increases from getting out of control.
“The government is working to increase revenue and Congress has not accepted these projects. This is leading us to the risk of revenue not coming in in proportion to the expenditures created and could lead to an inflationary process. We need to seek fiscal balance. In the world, caution with fiscal policies is practically consolidated. If revenue is not coming in, we work to reduce expenses. For now, President Lula has avoided addressing the issue.”, he said in an exclusive interview with Poder360.
Watch the full video (21min28s):
For Gerdau, the ideal interest rate level should consider the center of the inflation target (3%) plus 3 to 4 pp. Today, it is 7.5 points above – at 10.5% per year.
The businessman criticized the exceptions in the tax reform. According to him, these are the main reasons why the tax rate should be up to 27%. If there were fewer exceptions, it could fall to international levels, close to 20%. He suggests creating a tax collection ceiling. And the exceptions would have to adapt to this level, without exceeding the limits.
Jorge Gerdau is Chairman of the Board of Directors of Gerdau and Chairman of the Board of MBC (Movimento Brasil Competitivo). He participated in the 2nd edition of the Competitiveness Forum in Brasília, which discussed the digitalization of the economy and the use of artificial intelligence. He spoke with Poder360.
Read excerpts from the interview:
Poder360: You are the chairman of the board of MBC (Movimento Brasil Competitivo). You advocate greater digitalization of government and industry. How does this impact competitiveness?
Jorge Gerdau: It is very important to look at the global scenario and the competitiveness of all sectors in the business field in general. And the instruments that digital technologies bring modernize and greatly reduce the cost and time of work. These new technologies are decisive. I would say that today countries like Brazil, which are still lagging behind in one or another area, can quickly reach international levels with digitalization. That is why so much attention is being paid to the topic and the effort is being made to adapt the country to this new model and situation.
How can digitalization quickly reduce Brazil’s costs?
The reduction involves using technological mechanisms and a macrostructural definition in which all cost components in Brazil are analyzed using the international benchmark. Hence the importance of this path.
Has the Lula government shown interest in debating reducing the cost of doing business in Brazil?
We have had important progress and dialogues. There is something new, which is a secretariat within the MDIC [Ministério do Desenvolvimento, Indústria e Comércio] focused on reducing the cost of Brazil. In addition to the structure within the federal government, the vice president [Geraldo] Alckmin is familiar with this matter due to his previous experience in São Paulo. In the Legislative, we have the parliamentary front [do Brasil Competitivo]. In addition, there is business mobilization with the MBC. Now, the advancement of the process depends on political maturation and large-scale work.
Where is the debate more advanced: in Congress or in the Executive?
I would say that it is being done on both sides. The work is progressing. One of the main factors today is the creation of VAT to end cumulative taxation, one of the country’s biggest problems. Tax reform will put an end to this. Unfortunately, it is a medium-term approach. The debates on electricity have also advanced. The charge has been used as a collection instrument, with charges, etc. The international reality is that you cannot use different collection structures to impede competitiveness. We estimate that Brazil’s cost is R$1.7 trillion per year. Several factors need to be corrected. Labor remuneration, which has charges that other countries do not have. In most cases, workers receive 70% of the total money it costs. In Brazil, it is practically half. The technical bases are well structured. Now it is the political work.
Does tax reform pose any risks?
The text eliminates cumulation. VAT, in its philosophical concept, clearly establishes that it does not have any kind of cumulation. Now, the issue is complex. In the debates on changing the structure of electric energy, the current cost must be maintained because there are sectors such as aluminum, petrochemicals, relevant bases, that cannot have cumulation. We must comply with international standards that eliminate any kind of cumulation in order to have equal conditions of competition in exports and imports.
And the exceptions, how do you evaluate them?
Personally, I believe that the ceiling for our tax should be the average VAT rate in the world, between 20.5% and 21%. Brazil, due to the abundance of exceptions, is showing signs that it will reach up to 27%. This is a disproportionate burden on the Brazilian structure and, in my opinion, there should be a ceiling. When it hits the ceiling, you can no longer make exceptions. You have to readjust. Otherwise, Brazil, which has an unfair and high structure, will reach even worse levels.
How do you evaluate Lula’s 3rd government?
I believe that we must respect President Lula for his experience and expertise in leading Brazil. Now, the macro debate in which the government is working to increase revenue and Congress has not accepted these projects is leading us to the risk that revenue will not come in proportion to the creation of expenses. This could lead to an inflationary process. We must seek fiscal balance. The concern with fiscal policies is practically consolidated worldwide. If revenue is not coming in, we must work to reduce expenses. For now, President Lula has avoided addressing the issue, although in recent debates he has already indicated this need. This is a time of uncertainty.
How do you assess the interest rate in Brazil?
The cost of interest in Brazil is indeed very high. But this is nothing new. We have always had high costs. The Central Bank is working carefully because it is observing the global imbalance between revenue and expenditure and everything indicates that we are at some risk of rising inflation. Consequently, this path of reducing interest rates has been interrupted. We had a period of extremely high interest rates as a result of the United States, where interest rates are above 5%, very high. In Brazil, it should be 3.5 to 4 percentage points above inflation. We are at over 6. This number should be reached with the confidence that the revenue and expenditure accounts will balance. At the moment, we are in a situation of uncertainty. That is why interest rates are where they are.
What is Brazil’s biggest macro problem today?
There are two. On the one hand, we have to focus entirely on basic education, which is stagnant or getting worse. It is the most important factor for improving social conditions, productivity and growth. It is shameful that we are stagnant in these rates. The second is that the countries that are most prosperous have high savings and investment rates. The best examples are India and South Korea. Korea is very particular, but India is similar to Brazil. Here we have poverty. They have poverty and misery. But they have saved close to 26% of their budget. And they have been growing 6% to 7% per year for 10 years. In Brazil, the public sector savings rate is almost zero. We have grown 2% to 2.5%, close to the population growth rate. The focus should be on how much to increase per capita income. This discussion practically does not exist. There is nothing more social than employment. It is the best way to achieve justice and social development. The lack of investment is a consequence of global and government policies. It should take 2 or 3 years of effort to reach levels close to India.
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