Paulo Guedes hopes for fiscal reform and privatization proposals in 2020

On July 5th, Paulo Guedes, ministry of economy in Brazil, gave an interview to CNN Brazil and spoke about his expectation on fiscal reform and privatization proposals still in 2020. He explained that fiscal reform was a priority to the current administration, but the crisis of covid-19 redirected attention to solving issues of population’s health, employment and income. To him, current crisis projections of 10% PIB reduction of need to be reconsidered to a 6% fall, since the country’s exports were kept within good performance throughout the crisis.

Regarding fiscal reform, Guedes explained that a broad proposal will be presented to congress still in 2020. His intention is to broaden the bases of tax incidence with lower tariffs, easening the burden on labour taxation and, consequently on businesses. One of his proposals is to create an IVA tax (tax over aggregated value), and taxing digital services, but congress has not engaged in this digital taxation debate.

Guedes expects to advance on privatization projects in the sectors of electricity, water & sanitation, oil & gas, and coastal navigation. He looks at the subsidiaries of the state bank Caixa for a large IPO proposal. The expectation is that the privatization program also includes companies such as Eletrobras, Correios, EPL, Valec, EBN and Infraero.

However, according to the political analyst Thiago de Aragao, foreign investors do not expect Guedes’ privatization program to take off as quickly as expected by the minister, despite his good will and intentions. This common delay seen in the brazilian market is due to the complex institutional arrangement in the country, seen somewhat as a form of mechanism in place to validade and balance interests.

Ultimately, the positions of delegates in the national congress need to be assessed to further understand the likelihood of some of these privatizations. Whereas articulations for privatization of Eletrobras seem to be very unclear in congress, the recent approval of the sanitation law (PL 4.162/2019, waiting for sanctioning) opens up to new opportunities.

References

Estadao. O que o mercado precisa saber sobre as ultimas declaracoes de Paulo Guedes. Published on July 06 2020 by Isaac de Oliveira. Available at: https://einvestidor.estadao.com.br/mercado/ultimas-declaracoes-paulo-guedes/. Access on: July 11 2020.

Estadao. Investidor estrangeiro ve como irreal promessa de Guedes de 4 privatizacoes em 90 dias. Published on July 09 2020 by Thiago de Aragao. Available at: https://einvestidor.estadao.com.br/coluna/thiago-de-aragao/guedes-privatizacoes-investidor-estrangeiro/. Access on: July 11 2020.

Senado. Novo marco legal do saneamento basico aguarda sancao presidencial. Published on June 26 2020. Available at: https://www12.senado.leg.br/noticias/videos/2020/06/novo-marco-legal-do-saneamento-basico-aguarda-sancao-presidencial. Acces on: July 11 2020.