Bloomberg Línea — When attending an event organized by the Brazilian Federation of Bank Associations (Febraban) on November 25, Fernando Haddad was addressed as “minister” by the presidents of the top Brazilian banks and even by the president of the country’s central bank, Roberto Campos Neto. Maybe it was a mistake, or maybe he was referring to Haddad’s time as minister of education, a post he held from 2005-2012.
At the time, each word of Haddad’s statement were monitored and analyzed in detail by the bankers at the event and by market managers and strategists. In fact, they not only analyzed only the words he said, but also what he did not say. Haddad did not express concern regarding the sustainability of the government debt, neither did he mention the consequences of this risk perception for the financial conditions, such as long-term interest rates.
Neither did he make any comment about a new fiscal anchor to replace the current spending limit, which, as signaled by the new government with the Constitutional amendment for the transition of governments, should be addressed in 2023.
Formally presented on Friday as Lula’s finance minister, Haddad focused his speech on the need for tax and budget reform, two topics highlighted by economists as crucial to stimulate Brazil’s growth, and he defended a institutional political truce after years of conflict between powers.
This signal reflects an advantage that Lula sees in his new minister for the most important area of his third term, the economic one: with a profile considered moderate, Haddad has the ability to listen to the wings of the Workers’ Party that clamor for increased social spending, leaving the fiscal balance in second place, while maintaining open channels with the financial and the private sectors.
Analysts also see this characteristic in the future vice-president Geraldo Alckmin, former governor of São Paulo state, who was chosen to lead the transition team.
Haddad must also enable a few measures that belong to Lula’s economic agenda, as the next president has emphasized during the last few days. He means measures criticized by investors, such as the increased government intervention in the economy, public investment in state-owned companies such as Petrobras (PETR3, PETR4) and subsidies for areas considered priorities.
Prioritizing tax reform
At the Febraban event, Haddad said that tax reform is a priority, and signaled the defense of proposals already in progress in Congress, taking into account discussions already held and time-saving opportunity to vote in the first year of government.
This first stage, as he defined, would therefore include indirect taxes levied on products and services. Taxation specialists defend the adoption of a unified tax, with a value added tax, following the model used in many countries, due to the fact that it simplifies tax collection and planning, and offers greater transparency.
Direct taxes, on income and profit, would be addressed in the future, Haddad said.
When addressing the budget, Haddad defended increased transparency, which clashes with what is perhaps the main banner of the current Congress, the so-called ‘secret budget’, which allows the allocation of resources through parliamentary amendments without identifying the author.
He also referred to the quality of public spending, which theoretically aims at measuring the results of funds invested in increasing efficiency.
Goals, and their evaluation
In his years at the Education Ministry, first as executive secretary (2004 and 2005) and then as minister under Lula and then as part of Dilma Rousseff’s government, Haddad established evaluations such as the Basic Education Development Index to set parameters and goals for the progress of public education.
As mayor of São Paulo between 2013 and 2016, Haddad focused on programs to promote structural changes in the medium and long term, such as Plano Diretor, which established guidelines for urban expansion in the country’s biggest city by 2030.
The plan was complimented by some, and even received international awards, but criticized by others: it established conditions to increase population density in central neighborhoods with infrastructure such as public transportation, instead of prioritizing the occupation of the periphery.
He also won the Mayors Challenge Award for Latin America and the Caribbean in 2016, granted by Bloomberg Philanthropies, for a project to connect small farmers in the outskirts of São Paulo to restaurants and markets that demand organic food.
But, having been severely criticized, Haddad did not manage to gain re-election as mayor in 2016, a year marked by the increased rejection of the Workers’ Party and the impeachment of then-president Rousseff.