The austerity-mongers claim we must restrict government “spending” in order to have a balanced budget. It sounds responsible, but it doesn’t work. What we need is an intelligent balance between where the money comes from, and where it is invested. Brazil has the resources but lacks the corresponding financial policies.

Brazil is not poor. The goods and services we produce annually, the US$1.8 trillion GDP in 2021, for a population of 215 million inhabitants, represents about $2,600 dollars per month per four-member family. Quite enough to ensure basic economic comfort for all, if we moderately reduce inequality. With taxes around 34% of GDP, the State has sufficient resources to finance the necessary policies. The central problem is the profound distortion of the incidence of the tax burden, the generalized usury in the credit system, the use of exported natural resources for financial fortunes instead of funding development, and a fiscal policy that privileges financial groups and intermediaries that drain the economy instead of promoting it. The four main necessary shifts refer to tax policy, credit policy, the productive use of natural resources exports, and fiscal policy oriented to inclusive development. They all concern governance, and how we use our resources, not the lack of them.

Tax policy in Brazil is unfair, unproductive and inefficient. The bottom line is that well-managed countries use taxes to redistribute, resulting in a better-balanced society. In Brazil, taxation is used to concentrate even more. We need progressive, not regressive, taxation. Half our taxes come from indirect taxes, built into the prices of the products we buy. As the mass of the population spends almost everything they earn on purchases, the country's poor pay proportionately much more. We are one of the few countries with this nonsense. The income tax plays a small role, while it should be a tool to reduce inequalities: a maximum rate of 27.5% makes me as a teacher pay the same as the rich. Since 1995, distributed profits and dividends have been tax-exempt, deepening inequalities. We all need public policies, social services, and infrastructure. The rich who say that “tax evasion is not theft” like to have their children study in public universities, to live with paved streets. Contributions must be balanced. The ethical principle of reducing inequalities is fundamental1.

In this country where structural inequality is the main obstacle to development, we must also think about taxes in terms of the productivity of taxation itself. The ITR, Rural Land Tax, is practically not charged, which means that we have immense areas of idle land, in the hands of those who neither use nor let it be used, waiting only for the long-term appreciation that results from the opening of roads, of demographic pressure and other factors. Charging a tax on idle land will encourage landowners to work it, or sell it to anyone who will work it. Idle capital needs taxes so that it is stimulated to return to production. This also applies to the tax on profits and dividends (exempt since 1995), an absurdity that generates a universe of unproductive financial investments. It also applies to the Kandir Law, which exempts production destined for export. Primary exports generate few jobs, create environmental disasters and decapitalize the country, while the generated resources could finance industrial development, science and technology, and sustainability.

A third deformation of the tax system is the extreme concentration of resources in Brasilia, with very limited access to local governments. With 87% of the urban population, practically all the 5,570 municipalities in the country now have urban centers that allow an effective decentralization of access to resources, for differentiated use depending on local realities. Local authorities in Sweden manage around 70% of public resources, in Brazil we are on the order of less than 20%, with mayors traveling to Brasília to seek favors from the central government, turning politics into permanent bargaining. It is important to remember that the integrated computerized system makes it possible today to follow the flow of resources.

The general principle that has characterized the systems that work is that money is used more efficiently when the decision on its use is closer to the communities concerned. China, according to Kroeber, is even more decentralized than Sweden: it has a politically strong central government, but initiatives and management are local2. The current centralized tax policy is simply scandalous and paralyzes the country. The argument we hear is that decentralization will stimulate corruption, or that making the rich pay taxes will make them take the money abroad. Brasilia's worry about local corruption is certainly a curious reaction, and capitals don't have to run away: tax evasion today is already on the order of 8% of GDP, and we have hundreds of billions of dollars in tax havens. We need to rescue the tax policy in the country, in a fair and honest way3.

Tax policy is important, but so is credit. The money that is in the banks is ours, it belongs to the population and the companies, not to the banks, institutions that can be private but must receive authorization from the Central Bank, a charter that authorizes them to work with the money of third parties. Even the money that finances the public debt is our money, from our taxes. The essential thing is that the financial intermediaries who manage our resources must do so in a way that is useful to society. In Brazil, the financial intermediation system, instead of providing financial services and promoting the economy through productive investment, has become a network of financial drains, blocking household consumption, business investment, and public policies through the public debt service4.

The essential deformation, in economic terms, is that intermediating other people's money, or issuing papers and even money in the form of debt, is more profitable than investing in production. When interest rates, and we have to include the numerous fees and “reciprocities” charged, are higher than the income that they guarantee to borrowers, the result is that people and companies get indefinitely indebted, they “roll over” the debt without being able to get out of the indebtedness cycle. To have an order of magnitude, interest on the revolving credit in Canada is 11% per year, while in Brazil it reached 397% in mid-2022. The average commercial credit rate reached 88% in August 2022, for inflation of 7%. The policy adopted by President Dilma in 2013, which was to use public banks to offer credit to the economy with adequate interest rates, must be resumed, thus forcing the rupture of the cartel of large banks and the loan sharking that it allows5.

The measures, here too, are known, the Central Bank must once again play a regulatory role in the credit system, banks must once again serve the society whose money they manage, and not just serve themselves. Adopting measures close to the OECD average not only would ensure this functionality but would also prevent speculative flows with the external financial market. The limitations are political, not technical or financial. Both national and international shareholders got used to draining the Brazilian economy, generating unproductive fortunes in astonishing volumes. Any attempt to change the financial rentism system generates violent opposition among the elites, as seen with the reduction of interest rates and taxation of speculative profits (carry trade) adopted by the Dilma government in 2013, and which originated her ousting.

Much of the impunity with which financial groups drain the economy results from the population's lack of understanding of financial mechanisms, as can be seen with the absurdity of raising the Selic rate on the pretext of fighting inflation, a meaningless justification in an economy that is depressed, not overheated, or with the presentation of interest per month, when the rest of the world works with annual rates. The financial system needs to become transparent, and the Central Bank has an important role that needs to be rescued. The commercial media blame borrowers, saying they need financial education: no financial education will limit the loan-shark cartel.

Exports of commodities can be another source of resources to finance development. Brazil has immense natural wealth, in energy, water, minerals and agricultural soil. What we have seen in the most recent phase is a radical reprimarization of the economy, with de-industrialization, and loss of small and medium-sized enterprises and family farming linked to the internal market. With very advanced technologies, and under the financial control of international commodity traders, the export of primary goods has become the sector that has grown the most in the Brazilian economy but has become a drain.

Commodity production creates environmental disasters, generates few jobs, and has limited development induction effects, enriching shareholders and commercial intermediaries. Natural wealth is gradually exhausted, by the reduction of mineral reserves and by the weakening of soils and destruction of forest cover. Primary exports are only justified if the generated resources are used to get out of dependence on them. This involves the enrichment of the production chain, both upstream, with more local inputs, (scientific-technological basis, equipment, infrastructure) and downstream, for example, soybean oil and other industrialized sub-products instead of exporting the crude product.

On the other hand, as these are essentially natural resources, which belong to the nation, such as oil, instead of being privatized and used to enrich international traders and their internal associates, they should contribute to financing the balanced development of the country, with more science and technology, education, industry and other sectors that allow boosting overall development. Privatization causes the profits of primary export activities to enrich international and national shareholders – privatization here means denationalization – while tax exemption (Kandir Law) causes resources to contribute little to financing public policies. What is needed is using the primary sector to boost more technologically advanced sectors, more related to the well-being of the country. What we have today is essentially a drain. In the case of widespread hunger, this is a scandal: in 2022 we have 33 million going hungry, and 125 million in food insecurity, while the production of grain alone is equivalent to 3.7 kilograms per person per day6.

While streamlining the tax policy, regulating credit and adequately taxing commodity exports can generate the necessary resources, we must also ensure their allocation is productive. Fiscal policy aims to rationalize the use of public money. Overall, public funding must seek the multiplier effects of resources. Ensuring a basic income generates a higher return than what the government passes on to the base of society. Financing basic sanitation generates savings by reducing disease costs. Financing support for family farming ensures productive effects that also multiply resources. Social security policies generate well-being and demand at the base of society.

In general terms, instead of pointing out the deficit and proposing a reduction in “expenditure”, in the name of “austerity”, the government needs to direct resources to boost the underutilized productive base, reducing the deficit through the expansion of the productive base. This involves prioritizing productive inclusion, with basic income, expansion of social policies and investments in infrastructure and employment.

The basic problem is not “where” the resources come from – which is from taxes, but also from our savings, foreign exchange reserves, public debt or even public monetary issuance – but “where” they go: a good investment generates returns and balances the accounts. There is no way not to see the widespread looting of public resources that generated the situation in the country in 2022, with economic paralysis, high public deficit, growing inflation, absurd interest rates, and giving away natural resources, including oil, so important to finance development. The convergence of the absurdities of regressive taxation, usury in credit policies, privatization, and of fiscal policy that privileges financial corporations instead of promoting the economy, generates a catastrophe with simultaneous economic, environmental, political and social dimensions. Inclusive and sustainable development demands structural change.


1 A good read is Emmanuel Saez and Gabriel Zucman, The Triumph of Injustice: how the rich dodge taxes and how to make them pay. Norton, 2019.
2 Arthur Kroeber, China’s Economy. Oxford University Press, 2016.
3 The best study and systematization of well-quantified proposals, A Reforma Tributária Necessária. 2018. Was coordinated by Eduardo Fagnani, with the participation of about 40 researchers. Click the link for a full-download.
4 L. Dowbor, The Age of Unproductive Capital. 2019.
5 ANEFAC, Associação Nacional de Executivos em Finanças, Administração e Contábeis presents the different interest rates in Brazil, for families and businesses.
6 Oxfam, April 2022. Olhar para a fome.