New taxes hikes looms in the horizon

Fernando Haddad, the non economist minister of Finance in Brazil is becoming the caricature of himself as a tax hungry publican.

The previous govenment of Jair Bolsonaro had a Finance Minister – Paulo Guedes – with Austrian economic background and a practitioner of Arthur Laffer findings that there is a optimum point for taxation and that when the tax burden reaches too far, increasing tax rates diminishes the tax income and conversely, reducing the tax rates actually increase the tax income, with the economy growing faster and more money being available for investment and comsumption.

This was proven right with Brazilian economy moving strong even if during Covid-19 lockdowns and financial struggle in the whole world. Brazil economy rebounded with a V shaped restoration of the economy.

The regressive taxes were tamed, with ICMS ( state tax ) removed from fuel and the removal of some burdens in the payroll emmoluments.

Fernando Haddad, is a lawyer with post graduate thesis on Soviet socio-economic character (1987) and From Marx to Habermas – Historic materialism and adequate paradigm from 1996, both master and doctorate thesis from University of São Paulo.

The nature of his formation, clearly Soviet style socialism, moves Haddad towards increasing taxes and using the tax revenue as vote buying measures for the population. This populist politics have the bad consequence of incentivizing people to wait for the government to dispense money for food and housing rather than work.

Three of the Norther most regions of Brazil with 13 states have more families living on the Family Allowance program, receiving government money than working. This accounts for 14,7 million families that do not work and only waits for the government to keep on living.

In order to pay for this expenses, Haddad is increasing taxes. The ICMS on fuels have been restored and there is plans to restore the emoluments on payroll. This creates a burden on the productive part of the economy that given choice will invest somewhere else. The tax burden in Brazil today for a 10 million dollars revenue company is 34%.

The free money and the shortage of revenue income has moved the interest rate to 10,5% in Lula’s government. This interest rate is necessary because the voracity of the taxation measures from Haddad has pushed the exchange rate towards R$ 5,60 to the dollar, creating inflation.

Haddad has no solutions and with the municipal elections looming in the horizon, his caricature of the Roman Publican that represents a government that only takes tax money away.