The repeated follies of the tax game in Brazil

Give to find any logic in economic policy. Not even the most optimistic of the parents of the inflation targeting system could dream of a subordination so broad and unrestricted to the model as to defy any metric of common sense.

Yesterday, the Ministry of Planning and National Treasury announced the new central government fiscal target for 2015: primary deficit of R $ 51.8 billion, or 0.9% of GDP (Gross Domestic Product).

On top of this amount, the nation of botocudos knees to bow at the altar of ratings agencies, asking forgiveness for the sins of fiscal indiscipline.

If the deficit is caused by the frustration of revenue, which is due to the decline in activity levels in any country above the equator down 3% of GDP justify the primary deficit and resort to a looser fiscal policy to prevent the deepening recession.

This way, no.

Let a few numbers contrast with panic.

The estimate for total revenue in 2015 is R $ 1.256 trillion. The stock of the Federal Public Debt (DPF) is R $ 2.734 trillion. So if you have to cover the deficit by issuing bonds, the impact on the DPF will be 1.85%.

Let the most comparisons.

In September the government issued R $ 75.5 billion in new securities. Of this total, the interest expense was R $ 34.9 billion. In other words, in just one month, interest consumed 67.8% of the primary deficit forecast for the year.

In the 12 months through July, paid up R $ 452 billion in interest, or R $ 34.7 billion a month. From January to September, R $ 277.3 billion. In 2010, the interest account was R $ 200.5 billion.

This subordination reaches an irrational prescription is proof of 9 underdevelopment built over centuries. There is no other explanation for monetary policy, in broad recessionary environment, which restricts all credit and is willing to pay 14.25% of the basic interest rate. And that under the pretext of controlling inflation which is exclusively the result of price shock, exchange rates and dammed.

If all goes well, next year the gross debt / GDP will be over 70%. And all the logic of the tax adjustment is to control the growth of this relationship.

This pantomime has no end. Earlier this year, the Central Bank economists reported studies proving scientifically that interest rates would have immediate effect and almost painless on inflation. In the country of jabuticaba, according to the wise men of BC, the Phillips curve (which relates unemployment and inflation) would require a minimum sacrifice employment to take effect.

Weeks ago, they rectified studies, assuming that the sacrifice dose was underestimated. Simple, discreet self-criticism in a game that stirs the fate of millions of people.

Worse, there is no reactions in sight. The market knows that monetary policy is suicidal. But just understand its limits to bill now with interest and later with the arbitration exchange when the economic picture unravel.

And with the debt / GDP ratio at 70%, one more reason to require layoff budget cuts in the Bolsa Família, health and education.

by Luis Nassif