Brazil is trapped in a vicious tax load cycle, a low investment in infrastructure and negative public savings, according to economist Aloísio Araújo, professor at the Getúlio Vargas Foundation (FGV) and the Institute of Pure and Applied Mathematics (IMPA).
“Whenever the government saves on a reform, it soon spends on another measure, such as the increase in the minimum wage,” said Araújo. It’s a problem, ”said Araújo this Friday (21), at the event Brazil: Macroeconomic Stability, Climate Change and Social Progressat the University of Miami. The meeting was sponsored by XP.
The economist also commented on Brazil’s situation in recent years, emphasizing the difficulty of maintaining a consistent inflation target in a scenario of fiscal fragility.
“Chile, Türkiye and Brazil have different inflation goals, and there is something behind that we still don’t completely understand,” said Araújo. He stressed that, in economies with high tax burden and fiscal deficit, such as the Brazilian, there is a natural tendency to press up inflation, which requires caution in setting goals.
The economist recalled his performance as a central bank consultant at the beginning of the inflation target regime in Brazil in 1999. At the time, the goals were set at 8%, 6%and later 4%. Araújo criticized the temptation to reduce the inflation target prematurely, especially in a tax instability environment. “Inflation in Brazil oscillated around 4.5%, and that was indicative of where the country was,” he said.
The economist also said that the huge tax burden in Brazil already pressures the private sector and limits growth possibilities. The government, he said, has a negative economy, with no capacity to invest in infrastructure, a situation that makes it difficult to implement an efficient fiscal policy that could, in an ideal scenario, reduce inflation and indebtedness.
