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FLÁVIO x LULA: Economista Laura Carvalho fala sobre os riscos do plano de Flávio — Transcript

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0:00Did Lula spend too much?
0:01>> No, certainly not. The government did
0:04have one year where it actually spent
0:06more than it collected, significantly
0:08so, which was 2023. And that was
0:10because it inherited an expense that
0:12had been created during the Bolsonaro
0:14administration, the so-called
0:15court-ordered debt.
0:17>> Economy and finance. In today's video,
0:20you will see what the government plan
0:21is for Flávio Bolsonaro and Lula,
0:23addressing your questions. Meat is
0:26expensive, food is expensive, inflation
0:28, public debt, all this and much more.
0:31In this wonderful series, I sat down
0:33with three economists who agreed to
0:35talk with me and answer the public's
0:36questions. The economists are Juliane
0:41Furno, a professor at the UF School of
0:44Economics; Laura Carvalho, an economics
0:46professor at USP, a researcher at FGV's
0:49IBRI, and author of "Valsa Brasileira,"
0:52a wonderful book, guys, very good; and
0:55Pedro Rossi, a professor at the Unicamp
0:58Institute of Economics and author of
1:00the book "Brasil em Disputa." This
1:05series is especially for you who want
1:08to understand the economy, public debt,
1:10why things are expensive, inflation,
1:12the 6x1 work schedule, all this and
1:14much more here at Nat Finanças. Stay
1:18tuned for the video. Laura, thank you
1:21so much for agreeing to work on this
1:23holiday, on Our Lady of Aparecida day,
1:25to talk about the economy and finance,
1:28about the government plans of both
1:30Flávio Bolsonaro and Lula, and the
1:32risks for entrepreneurs as well. Thank
1:35you so much.
1:36>> Thank you, Nati. It's a pleasure to be
1:39here.
1:39>> Oh, so let's get started, right? Let's
1:41go to the questions, questions from the
1:42people. The first thing is about
1:44privatization. We hear a lot as
1:47entrepreneurs that privatizing will
1:49solve everything, for those who buy,
1:52for those who sell, for everyone; we
1:54know that gasoline, when we talk about
1:57small businesses too, everything
1:59affects it.
2:01>> And they say that privatization is one
2:04of the ways to solve certain problems.
2:06So I wanted to know, does it really
2:08solve them? It’s not the silver
2:10bullet that people sell, is it? People
2:13sell this idea that you just have to
2:14sell it to a private company and
2:16everything will become more efficient
2:17and the costs will drop. In practice,
2:20that’s not what we see. There are
2:22strategic sectors of the economy where
2:23it is important for the state to
2:25maintain control. For example, under
2:27the Bolsonaro government, BR
2:29Distribuidora was privatized, which is
2:31the entity that handles fuel
2:33distribution to gas stations. So,
2:35before it gets to the gas station,
2:37there's this BR Distribuidora.
2:39>> Exactly. In fact, there are stations,
2:41the BR ones we know, that belong to BR
2:44Distribuidora. Essentially, what
2:46happens? Before, you had the
2:48possibility to prevent higher
2:51international prices from translating
2:53into higher prices at the gas station
2:56for people, for entrepreneurs, for
2:58companies, which ends up hitting all
3:01prices in the economy, right? Because
3:04fuel is practically in everything,
3:06right? Today, what happens? The
3:08government still has control of
3:10Petrobras. If Petrobras is privatized,
3:12it will totally lose that control over
3:15fuel prices. But even when the
3:18government reduces fuel taxes to try to
3:21prevent a price shock like the one from
3:23the Iran war from hitting the consumer,
3:26BR Distribuidora ends up not passing
3:28this lower cost it has, these lower
3:31taxes, on to the gas pump. So what
3:34happens is that it takes, takes
3:36advantage of these moments to have a
3:38higher profit margin, because it is a
3:40private company driven by profit, and
3:42in the end, the consumer pays. So,
3:44privatization is something that has to
3:46be very well thought out. Which sectors
3:49can this happen in, where is it
3:50positive, and which are the strategic
3:53sectors where it's better for the state
3:55to maintain greater control, whether
3:57through regulation or through ownership
3:59, the actual control of the companies.
4:02>> No, totally. And when we talk about
4:04privatization, I spoke with President
4:06Lula at the Sincensuri, and he said he
4:08lowered it; but that lower fuel price
4:10at the pump didn't reach the people,
4:11because this company that distributes
4:13ends up keeping it more expensive,
4:15because it prioritizes profit, it won't
4:17pass it on to the consumer, right?
4:19>> Exactly. So what happens is that BR
4:22Distribuidora started being privatized
4:24in 2019, right? This privatization
4:29happened in 2021, when the sale of the
4:31company's shares was actually finalized
4:33, and that took out an important part
4:36of the fuel supply chain. And if
4:39Petrobras is privatized, which is the
4:42one that produces, then the government
4:44really loses the possibility of
4:46preventing this pass-through of shocks
4:48that we don't control, that come from
4:51outside, even more so in this
4:53geopolitical environment that is
4:55increasingly volatile, and that is
4:57constantly hitting the price of oil, we
4:59lose the capacity to prevent this from
5:01hitting people's pockets. Wow, perfect.
5:06And then there's another thing, right,
5:08that people usually say, uh, can
5:10cutting spending produce a crisis? If
5:13you go around cutting spending for the
5:15entrepreneur, then everything has to be
5:17cut, the government has to make
5:19spending cuts. Is that actually, uh,
5:21productive? Does it help or not?
5:25>> Look, I think that depends on the size,
5:27the volume, the speed, and what
5:29spending we're talking about, right?
5:31What spending, public spending is one
5:33of the main drivers of the economy,
5:36right, as a whole. When the government
5:38invests, when the government does a
5:40project, when the government makes
5:42social expenditures, it is, in fact, uh
5:44, transferring resources to people who,
5:46right, are creating jobs that will
5:48consume more. And this, in turn, makes
5:52businesses and everyone around sell
5:54more. So, when the government spends,
5:56it has what we call a multiplier effect
5:58on the economy. Every real the
6:00government spends doesn't just generate
6:02one real of economic activity, it
6:04generates 1.5, two, depending on the
6:06spending, right? It more or less
6:07doubles the effect this has on the GDP,
6:09on economic activity. So, if the
6:12government suddenly makes a very
6:14significant spending cut like this one
6:16that, for example, uh, Flávio
6:17Bolsonaro and his team have been
6:19talking about, right, of making a deep
6:21cut,
6:22>> 200 billion, they say, we don't know
6:25where it comes from, right, because
6:27they don't say where it comes from, but
6:29200 to 250 billion in spending, we're
6:31talking about 1.5%of GDP or 2%of GDP, a
6:33cut of that size is indeed capable of
6:35generating an economic crisis. Then
6:38we're talking about really pulling the
6:40handbrake on the economy, right? Taking
6:43money out of people's hands. And this
6:46tends to have a vicious cycle that ends
6:48up harming even the public debt,
6:50because we think, oh, no, but it's
6:51important to cut because the public
6:53debt is high, so it doesn't matter. But
6:57if you pull this handbrake on the
6:59economy and everyone stops consuming,
7:01stops producing, and the economy falls,
7:03what happens? Government tax revenue
7:06also falls because the economy is,
7:09right, stopping its momentum. And this
7:12ends up harming the revenue itself, the
7:14government's own deficit, the public
7:17accounts, and above all the debt-to-GDP
7:19ratio, which depends on that GDP, right
7:21, which is how much production and
7:23income we generate in each period, it
7:26can also rise. So, it is very
7:29counterproductive to have public
7:31spending cuts that aren't thought out
7:33in a reasonable, sensitive way, that
7:35aren't looking at where you're cutting,
7:38at the pace of those cuts, and that
7:40don't understand that the government is
7:43not, it’s not like a family, right?
7:46It
7:47>> The government acts in a very different
7:49way in the economy. It has a very large
7:51weight in the economy, doesn't it? So
7:54it can't make adjustments like you, the
7:56homemaker, who, you know, makes your
7:58own adjustments. No, when the
8:00government cuts, it affects how much it
8:02earns, right, how much it collects.
8:04It's different from us, right?
8:06>> No, totally. The plan from Flávio that
8:09I was reading is to cut from all sides,
8:11but it doesn't say how, where, or what
8:14will be done. And that also worries me
8:16as a citizen, because imagine, you're
8:18going to make a cut, but without
8:19knowing where that cut will go. Will it
8:21be on medicine, will it be on
8:22healthcare, will it be on education,
8:24right? We saw what happened with the
8:26Temer government's spending cap, which
8:28directly affected education and
8:29healthcare. So it's something that
8:33worries me and it was very good that
8:35you clarified it; and since we're
8:36talking about spending, people often
8:38say that Lula spent too much, that "oh,
8:40I'll vote for him, but what's the issue
8:42is the high spending." So, directly,
8:45did Lula spend too much? No, definitely
8:48not. We had one year where the public
8:51accounts were less balanced, which was
8:532023, when we had a deficit, right? The
8:57deficit is this difference between how
8:58much the government spends and how much
9:00it collects, even without counting how
9:01much it pays in interest on the debt it
9:02has, right? So imagine you have a car,
9:06a credit card debt, suddenly you're
9:07spending a lot because you're paying
9:09off this credit card debt you
9:10accumulated back in the past, but now
9:12you're not spending anymore, right?
9:14you're already controlling it. So, the
9:17government had one year where it really
9:19spent more than it collected, right,
9:20significantly, which was 2023. And this
9:24was because it inherited an expense
9:26that had been made back in the
9:28Bolsonaro administration, which are
9:30called "precatórios," which are these
9:33debts that the government has from
9:35court rulings, right? Things that it
9:38owes to people because it lost lawsuits
9:40, right? And what happened? In his
9:42final year in office, Bolsonaro pushed
9:45things forward to cover his electoral
9:47spending and so on. He pushed those
9:49legal debt payments, or "precatórios,"
9:51into the future. So, in Lula's first
9:54year, you had to honor all those
9:56commitments, pay off everything that
9:58had been left over as unpaid from the
10:00Bolsonaro administration. And that is
10:03why you had a slightly larger deficit.
10:06The deficit in this 2023 administration
10:08, in that year of 2023, was 230 billion
10:10reais, of which 93 billion was to
10:12settle those court-ordered debts. Since
10:16then, no, in 2024, 2025 the deficit
10:18dropped, it went to almost zero, right?
10:21It reached nearly zero. The fiscal
10:23target was met. In 2025, you reached a
10:27primary deficit of 0.48%of GDP. By
10:30global standards, that is a very low
10:32primary deficit. So we are not talking
10:35about a government that is a big
10:37spender. Without a doubt. That is not
10:39the case. Even when we look at the
10:41historical series of primary results,
10:43this is a government that has, uh, very
10:45balanced public accounts, right? The
10:48real issue is interest rates,
10:50>> isn't it? Because they say, speaking of
10:53interest rates, they say Brazil's debt
10:55is near 100%of GDP, that the currency
10:57has no stability. So people say: "Oh,
11:00our currency in Brazil has no stability
11:02, the government is spending too much
11:04on public debt." So the main question
11:08is, is the debt out of control? Because
11:11that's it, you said Lula didn't
11:13overspend, but the debt is out of
11:14control, people don't feel that in the
11:16market, they don't feel that in their
11:17daily lives.
11:18>> Well, first you have to separate that
11:21from household debt, right? Private
11:23sector debt and public debt, right? We
11:26have a problem with high interest rates
11:28in Brazil, right? Whether for
11:30individuals, for consumers, or for the
11:32government. There are several factors
11:35for this that we can talk about later,
11:37but the fact is, we did indeed increase
11:39this public debt in recent years. It
11:42went from 71.7%of GDP to 82.5%of GDP,
11:48right? It rose by a few percentage
11:50points as a share of GDP. Why? Because
11:53what matters when we talk about a
11:54country's debt, it's not the debt in
11:56absolute terms, it's what it is in
11:58relation to the size of our economy,
11:59right? Because that is what gives us an
12:03indicator of whether or not we are in
12:05an unsustainable situation. This debt
12:08did rise, yes, but it is not exploding,
12:10it is not out of control. The current
12:13forecast, the projection, is that it
12:15will reach a peak around 2032, more or
12:17less. But all of this depends on these
12:19interest rates, right? If interest
12:21rates start to fall, for example, in
12:23the international scenario, because
12:24today global rates are high all over
12:26the world, everyone,
12:27>> in the whole world. If interest rates
12:29start to drop, then you can reach a
12:32debt equilibrium trajectory much faster
12:34. So, it depends a lot on your interest
12:38rate levels, it depends on how much
12:41your economy is growing, but the fact
12:43is that the government is unable to
12:45balance this debt just by saving money
12:47itself, because since there is debt
12:49accumulated from the past, it pays
12:52interest on it, it becomes an effort,
12:54as we say, of drying ice, because if
12:56you keep trying to cut your spending to
12:58pay off past debt, you end up hurting
13:01the economy's own growth, so the GDP
13:03doesn't grow. Then the debt rises in
13:06relation to GDP, and that doesn't help
13:08either, right? So I think it is
13:09important to understand that in
13:11macroeconomics, everything is a
13:12question where every parameter matters,
13:14every single thing matters. You have to
13:17have a policy that is responsible, that
13:19is looking toward this debt stability a
13:20few years from now, but that doesn't
13:22try to solve everything at once,
13:24because otherwise you end up hurting
13:26your own plan, right? Perfect. Perfect.
13:29And when we talk about this, is it
13:31possible then for the government to
13:34make the debt stop growing?
13:36>> Without a doubt, it is possible. I
13:38think there are three paths. The first
13:41is to grow the economy, because when
13:43the economy grows, when the economy is
13:44doing well, you generate more income
13:46opportunities for people, right? More
13:49consumption. And you are focused on
13:51growing that.
13:51>> So, we first need to have an economic
13:53growth agenda, right? An agenda that
13:56has to do with strategic government
13:58investments in strategic areas, areas
14:01that help to ease the situation for
14:03families so that families can also
14:05spend more. Areas that help generate
14:08better jobs, jobs, what we call premium
14:10formal employment, really good jobs
14:12with good salaries, with benefits, and
14:15also opportunities for those who want
14:17to be entrepreneurs. So you need an
14:20agenda, an agenda that is looking at
14:22what Brazil's potential is, what are
14:24the strategic sectors where Brazil can
14:27have the best, the best use of the
14:29natural resources it has, the
14:30capabilities and qualifications of our
14:33people, where we can position ourselves
14:35in the global economy strategically. So
14:39you need to have a vision; it’s not
14:41just about thinking you’ll cut
14:43spending and that, by itself, will
14:45generate economic growth. It doesn’t
14:47work like that, it has never worked
14:48like that. On the other hand, we do
14:51indeed need to make adjustments, where,
14:54ah, we currently spend a lot, nearly 6%
14:57of GDP on what we call tax subsidies.
15:00What is that? Ah, the government
15:02reduces, uh, some taxes, not for those
15:05who necessarily need it, you know, but
15:08for big businessmen who have power
15:10there in Congress, lobbied, and managed
15:13to get tax benefits in the past. And
15:16then the government tries to remove
15:18those benefits because that is just
15:19being pocketed as extra profit for
15:21large companies that suddenly don't
15:23even need that help, and, uh, they
15:24can't. Why? Because Congress is there,
15:27uh, representing those interests and
15:29blocking it. So there needs to be a
15:31demand from society to cut those
15:33benefits, to cut those salaries, right?
15:36Other things you also know about, these
15:38sectors are very powerful, they are
15:40very strong and they prevent,
15:42parliamentary amendments. So, of course
15:44there are areas where it is possible to
15:46adjust and cut spending. And finally,
15:48we need the interest rate to fall,
15:50right? Because as long as the interest
15:51rate doesn't fall, it will really be
15:53very difficult for us to balance this
15:55public debt.
15:55>> No, totally. So, since you explained
15:58about interest, that this interest rate
16:00has to fall, why are interest rates so
16:02high? This SELIC is hitting there, it
16:06already reached 15%in the Lula
16:08administration, now it's at 13.75%,
16:10which is the same as it was under
16:12Bolsonaro in 2022, because many people
16:14forget, they think Bolsonaro was at 2%
16:17during the pandemic. No, people, it
16:20reached 13.75%per year by the end of
16:22his term. So, why does Brazil have the
16:25highest real interest rate in the world
16:27? And whose fault is that?
16:30>> That is the question that every
16:31macroeconomist tries to answer with
16:33research, with studies, right? I think
16:36today, what evidence do we have? First,
16:39yes, there is a component that is
16:41international, which, uh, we are seeing
16:44all over the world. So there is, we
16:46went through shocks since the pandemic,
16:48also under the Bolsonaro administration
16:49, right? You had price shocks because
16:52of the war in Ukraine, because of now
16:55the war in Iran, which hit, they are
16:57inflationary shocks, they are shocks
16:59that hit food prices, that hit fuel
17:02prices. And with that, what happens?
17:06causes central banks in the United
17:07States and Europe to raise their
17:09interest rates, which ends up forcing
17:11central banks in developing countries
17:13to raise their rates even further,
17:14because if they don't, what happens?
17:17These investors who are looking to make
17:19money from interest, because we pay
17:21interest, but someone earns it, right?
17:23Whoever buys public debt or private
17:26debt earns interest. It’s a financial
17:28return. When you put your money to earn
17:31interest in an investment bank,
17:33>> a CD,
17:34>> in a CD,
17:36>> you earn interest on that, right? So,
17:38how does it work? What happens? Rich
17:40countries have, of course, a lower risk
17:43. So, in a crisis like this, everyone
17:47will want the interest from US Treasury
17:49bonds, right? Even if the interest rate
17:52is lower, we here have to raise our
17:54rates even higher to be able to attract
17:56those investors.
17:57>> Ah, so we increase the interest rate,
17:58which is one of the mechanisms to raise
18:00rates to also attract those investments
18:01.
18:01>> To attract them, because if we don't
18:03attract these investments from abroad,
18:05what happens? The dollar goes up. And
18:08when the dollar goes up, our inflation
18:09also goes up, because many of the
18:11prices of what we buy are imported
18:13goods. So, there is an international
18:16side, but of course, we in Brazil end
18:19up having a burden, uh, I mean, every
18:21time, first our inflation target is low
18:23, okay? We think inflation is very high
18:27, and I understand that prices have
18:29indeed risen significantly in the
18:31aggregate. But looking at other
18:34developing countries, and thinking
18:36about Brazil's own history, we have an
18:38inflation target of 3%today, a goal
18:39that Brazil has managed to meet in very
18:41few years in its history. So, if you
18:45have a 3%target, right, and you are
18:47dealing with this global inflationary
18:50effect, you need to raise interest
18:52rates a lot every time to try to
18:54prevent the dollar from rising. So this
18:57ends up feeding back, because the
19:00higher the interest rate, what happens?
19:03The more of this type of investor you
19:04attract, which is the investor looking
19:06for that return. And then every time
19:08you want to cut interest rates, this
19:10guy flees from here. This investor who
19:12is just speculating there, right?
19:14>> Then it becomes more expensive for you
19:15to finance a house, a car, or to build
19:17a career,
19:18>> It has an effect above all, and for the
19:20government, it has a very serious
19:21effect, because that’s it: this
19:22public debt we’re talking about
19:24becomes very expensive. So, our problem
19:27today with high public debt isn't that
19:29we might not be able to pay it, it's
19:31not that we’re in an imminent crisis,
19:33it’s not that we...Brazil has debt in
19:35reals, Brazil doesn't have debt with
19:37the IMF, Brazil isn't in a scenario
19:39where anyone is seeing an "Oh my God,
19:40there will be a fiscal crisis." Whoever
19:43says that isn't basing it on evidence
19:46or facts. No, we don't have, we don't
19:49have that risk. But the bad thing about
19:51this high debt is the high interest,
19:53it's how much we spend on interest, and
19:56because of that, there's less left for
19:58us to spend on the things we should be
20:00doing to transform Brazil into this
20:02upper-middle-class country we all want
20:04to become, right?
20:07>> Since you mentioned inflation, Laura, I
20:09really wanted to ask, just like
20:11everyone at home, why food is so
20:12expensive. Well, Nati, we’ve had some
20:16very complicated moments since the
20:18pandemic. We have to remember that back
20:22in the 2022 election campaign, when
20:24Lula won, this was already a topic,
20:26right? Remember the "expensive pocket,"
20:30people talking about expensive food,
20:32how Lula campaigned talking about
20:34picanha, right? It was already a topic
20:37back then. Why was it already a topic,
20:38though? Because during and after the
20:41pandemic, we had this first shock of
20:43inflation worldwide due to the pandemic
20:45itself, right? You had several
20:48production chains that were broken
20:50because of the pandemic, and products
20:52ended up being more expensive in many
20:54places. This creates a chain reaction,
20:57right? Because there are sectors where
20:59one input depends on another, one thing
21:01depends on the next, and you end up
21:03triggering chain effects. After this
21:05first shock, which was during the
21:06Bolsonaro administration, you had the
21:08war in Ukraine. The war in Ukraine
21:10affected food prices all over the world
21:12. So you had another very strong food
21:15price shock, because Ukraine is a
21:16country that produced a lot of wheat,
21:18and you had an impact on agricultural
21:20fertilizer, which is used for the
21:21production of all food. So you had a
21:24second very important shock there,
21:26worldwide. And now we’re going to go
21:28through another one, okay? You'd better
21:32get ready, because this war in Iran,
21:35which for now has hit fuel, well, fuel
21:38is the first phase, but we will still
21:40have an effect on agricultural
21:43fertilizers too. It takes time to reach
21:47food prices, because the harvest will
21:50be harmed by this higher cost of
21:52fertilizers, right? Everyone who has to
21:55use fertilizer to produce, that will
21:57then hit the consumer price further
21:59down the line. So we are really in a
22:02very complicated international scenario
22:05of inflationary shocks, not to mention
22:08climate issues, El Niño, which are
22:10also creating more and more volatility
22:13in these prices. So we are facing this
22:16problem. Food inflation in Brazil today
22:19has already fallen quite a bit, right?
22:22When we talk about inflation, we aren't
22:24talking about the price, we are talking
22:25about price growth, the growth rate of
22:27these prices, right? So it's like a car
22:30, a movement. And so,
22:33>> Exactly, inflation is like that, it's
22:36about how fast this car is moving,
22:38right? It's not where the car is right
22:42now, the snapshot, it's this film,
22:44right? The inflation rate. So, today
22:47we've changed a lot, prices aren't
22:50rising as fast. Food inflation in
22:53Brazil today is below 3%, general
22:55inflation is around 4.2%or so. Which is
22:59much less than it was in 2022, it
23:02reached 11%, more than 11%, right, the
23:05inflation rate in Brazil. So we reduced
23:08it. But is that felt by people? No.
23:10What do people feel? They aren't
23:12looking at the comparison, they are
23:14seeing that the price is higher.
23:16Something that cost 30 is now 40. I
23:18remember it was 30, right? They aren't
23:21looking at whether that 30 went from 30
23:23to 40 in 2 months or went from 30 to 40
23:25in 2 years, right? Which is what we are
23:28talking about when we talk about lower
23:29inflation, right? How long it takes for
23:31something to go from 30 to 40, right?
23:34>> And in the past, it was pure inflation.
23:37I remember that before the Real Plan
23:39you had to buy it
23:40>> on the same day, because the next day
23:42it was different.
23:43>> So, one way to look at inflation is
23:45like this: how long does it take for
23:47something to go from 10 to 15 dollars,
23:48right?
23:50>> Because it will increase,
23:51>> it will always increase. I think it's
23:52important to understand that as well.
23:54It is healthy for an economy, an
23:56economy that is doing well, an economy
23:58that is growing, an economy where
24:00things aren't in a deep crisis, it's
24:03natural for prices to rise over time.
24:05What shouldn't happen is for them to
24:07rise too fast, right? It is expected
24:09that in an economy that is functioning,
24:11people are also earning more. People
24:13are paying more and are earning more.
24:16And today the purchasing power of wages
24:19, of income, is rising; people's
24:21salaries are growing faster than prices
24:24are, but that's not necessarily what is
24:26perceived, right? I think it's
24:30important for us to understand this,
24:31and it makes sense when you look at a
24:33price increase and think: "Darn, I used
24:35to pay 30 for this, and now I'm paying
24:3740." Whose fault is it? The leader's.
24:42>> When you earn more— "Oh, today I'm
24:43making 3,000, before I made 2,000"—
24:45whose merit is that? It's yours, for
24:48being out there grinding and working.
24:50So, every leader is penalized for price
24:53increases. Now, as for prices falling,
24:56all prices, right? You might even have
24:58a price that went up here because the
25:00tomato harvest was smaller, there was a
25:02shock, and then the price fell. Okay,
25:04you see that there are things that go
25:06up and down, but for prices across an
25:08entire economy to fall, it only happens
25:11in a period of deep crisis, which is
25:13not what we want. Deflation. Deflation,
25:17which is that drop in prices. This only
25:20comes if the economy is in a deep
25:22crisis, which is not something we want,
25:24right? With higher unemployment, with
25:27money leaving circulation. So, it's
25:30also important for us to understand
25:32that what we want is for inflation to
25:34move slower, for prices to grow slower
25:37on one hand, and for wages and income
25:39to grow faster on the other. This is
25:42our goal: to gain purchasing power, and
25:44not necessarily to have prices fall.
25:47>> Wow, perfect. A wonderful explanation.
25:49And since we're talking about prices,
25:51we need to talk about taxes, because
25:53that's a major sticking point when we
25:55compare the government plans of
25:57Bolsonaro and Lula. So, the
26:00million-dollar question asked here is:
26:02why does consumption tax weigh so
26:04heavily on the poor? Well, consumption
26:08tax is truly what we economists call
26:10the most regressive way to collect
26:12taxes. What does that mean? Who
26:15consumes? Everyone, right? The poor,
26:17the rich. But for the poorest, right? A
26:20larger portion of the income they earn,
26:22of what they make, is consumed. Almost
26:24everything they earn, they often end up
26:25spending on consumption, right? So this
26:28means that these taxes paid on consumer
26:30goods represent a larger share of what
26:32they earn compared to the rich. The
26:34rich will have a large part of the
26:36money they receive left over that they
26:38aren't consuming. So they end up paying
26:40less tax on consumption. That's why in
26:44an ideal world, we want to reduce taxes
26:46on consumption and increase taxes on
26:49income, which is what the Lula
26:51administration did to some extent when
26:53they raised taxes for those earning
26:56more than 600,000 reais per year. So
27:00that is the most correct, most fair
27:02model of taxation. You charge less on
27:06those products at the supermarket that
27:08end up falling disproportionately on
27:10poorer consumers and the middle class,
27:13and you charge more based on how much
27:15you earn. Because then the rich person
27:18who isn't consuming as much, but is
27:19earning a lot and saving, accumulating
27:21wealth and assets, ends up paying a
27:23larger share of their earnings in taxes
27:25than the poor person does. I think
27:27that's where we want to get to. We have
27:29moved a bit toward that. We had a
27:32consumption tax reform that, although
27:34it didn't reduce the tax on all
27:36consumer goods, it simplified the tax
27:38structure. It has a cashback system,
27:42right, that will provide tax relief on
27:44certain items for poorer families, like
27:46basic food staples. But of course, in
27:49Brazil, we still have a tax structure
27:51that hasn't reached where we want it to
27:52be, right? It is still regressive; it
27:55still charges more from those who have
27:57less. We need to move much further in
28:00taxing the richest in order to relieve
28:03taxes on the poorest.
28:05>> No. Perfect. And then another question
28:09I found funny, though I've already
28:11talked about it so much on social media
28:13, is about the government taxing Pix.
28:16All the time people keep saying: "The
28:19government is going to tax Pix, will my
28:21Pix be taxed, will my accounts be
28:23audited, will I have to file tax
28:25returns, anyway." So many things people
28:29say.
28:29>> No, no, that has already been debunked,
28:32right? What actually happened, which
28:34sparked this fake news, was a
28:36regulatory measure that was extended to
28:38fintechs, right? So you had these
28:41fintechs, which are these new banks,
28:43let's say, that were not recording what
28:46the traditional banks we knew already
28:48recorded, right? Every financial
28:51transaction is recorded; it passes
28:52through the Central Bank's system. So
28:55what you couldn't have were things
28:57under the table that were even helping
28:59organized crime and money laundering to
29:02conduct transactions via Pix that
29:04bypassed the Central Bank and Federal
29:06Revenue's monitoring system. And that
29:09favored crime, right? So, that
29:12oversight measure turned into fake news
29:15about a threat of taxation, but there
29:18was never any possibility of taxation.
29:21Some people now even think that with a
29:24potential Flávio Bolsonaro government,
29:26you wouldn't necessarily have Pix
29:29taxation, but you would face a risk to
29:31Pix, right, because of this retaliation
29:34that Trump and the American government
29:37have against Pix. They accused Pix of
29:40being biased, of being something Brazil
29:43is doing against competition, right?
29:46Why? Because they want Visa, Mastercard
29:49, and American credit card companies,
29:52which are being heavily harmed by Pix.
29:55>> Totally, because it's cheaper, much
29:56easier. So Trump included in the
29:59justification for the tariffs to tax
30:01Brazil and Brazilian products. He
30:04stated in the justification that Pix
30:06was unfair competition. It's not unfair
30:09competition; it's a public good, a
30:11public asset, a public policy of the
30:13Brazilian Central Bank. That is not
30:15unfair competition, is it? And we have
30:18no obligation whatsoever to cede our
30:21market to Visa or Mastercard. So, that
30:24is where the risk lies. I think the
30:27risk Pix faces today is the risk of the
30:29American government potentially
30:31attacking our Pix to try to increase
30:34their profits, right, and regain the
30:36market share that card brands used to
30:39have here in Brazil.
30:41>> Totally. Moving toward the end, let's
30:43talk about Flávio Bolsonaro's plan,
30:44and the first point is about the major
30:46spending cuts. Laura, do these spending
30:49cuts add up, since he said he will cut
30:51from all sides, except for taxes? You
30:54saw, right, that there will be more
30:56money left over to also maintain social
30:58programs like Bolsa Família. Is it
31:00possible to do all that at the same
31:01time with his major spending cuts?
31:02>> Look, it's very difficult to understand
31:05, right? Because Flávio Bolsonaro’s
31:07team goes there to Faria Lima, right?
31:09They go to talk to the market people,
31:11the financial market, and they say one
31:13thing, right? They say they’ll cut
31:15250 billion and have already signaled
31:17they’ll do what the market wants,
31:19which is to decouple pensions from the
31:21minimum wage, right? In other words,
31:24pensions grow much less over time,
31:26because they will no longer follow the
31:28minimum wage adjustment. Then they tell
31:31the market they want to decouple the
31:33minimum wage itself from inflation, so
31:35there are no more raises above
31:36inflation, which by the way is what the
31:38Jair Bolsonaro government did, right?
31:40The minimum wage did not grow with
31:42inflation during the Jair Bolsonaro
31:43government. They say they will remove
31:45the floor for health and education,
31:46right? Today, every time the government
31:48collects more revenue, it must allocate
31:50a specific additional portion to health
31:51and education. So, it’s already a
31:53push from financial market analysts to
31:56remove this floor. So, all of this is
31:59promised to the market. Then when they
32:00go to the voter, they don't want to say
32:02these things, right? And so they don't
32:04say where they will cut from. So their
32:06plan is very vague,
32:07>> they don't say, they just say they'll
32:09cut ministries. Guys, the number of
32:11ministries is not a significant saving
32:13for the government. The government
32:16doesn't save anything near 200, 250
32:18billion reais, which is what is being
32:20promised, by cutting ministries. If you
32:22reach 1 billion, you're already being
32:24generous, right? Because it’s not, it
32:26doesn’t work. This is the kind of
32:28rhetoric that doesn't translate into
32:30reality. Even there in Milei’s
32:33Argentina, this has also been
32:35propagated as a solution and it isn't
32:37working. So this math doesn’t add up,
32:40especially if you’re going to reduce
32:41taxes. Because how are you going to do
32:43it? You’re going to reduce taxes.
32:44Well, first, for whom are you going to
32:46reduce taxes? Because usually these
32:48people get there, when they are going
32:49to reduce taxes, they reduce taxes for
32:51big business owners, for the rich, who
32:53are the ones with power over these
32:55people. Right? So you can imagine, you
32:58reduce taxes, so you’ll have to cut
33:00even more spending to avoid problems
33:01with public accounts. There’s nowhere
33:04to cut that doesn’t affect people's
33:06lives. It will affect people's lives or
33:09else you won't cut and will create a
33:10worse public debt problem. These are
33:13the two scenarios we are working with.
33:15I don’t know who they are lying to,
33:17if they are lying to Faria Lima or if
33:19they are lying to the voter. But
33:21neither of these two scenarios is good
33:22for the Brazilian economy. Look,
33:24frankly, one of the two is lying. And I
33:27don't think it's the voters who will be
33:29calling Flávio Bolsonaro.
33:31>> Yeah, I also tend to think that if
33:33Faria Lima is so excited, if the banks
33:35are so excited, if the stock market is
33:37so excited, it's because they believe
33:39the promises Flávio Bolsonaro’s
33:41economic team made about cuts to health
33:43, education, the minimum wage, and
33:45pensions, right? I think there’s a
33:49better chance they are telling the
33:50truth to Faria Lima, which will hold
33:52them accountable—we know how they do
33:54that—than to the voters. But of
33:56course, they don't want to tell the
33:58voters they are going to go around
34:00cutting what currently benefits them
34:02directly and indirectly, because as we
34:04said, a cut of this size won't just
34:06affect retirees, those on social
34:08programs, or users of public health and
34:10education. It will affect everyone,
34:13because the economy suffers the
34:15consequences of an adjustment of this
34:17magnitude.
34:18>> That’s perfect. And since you brought
34:21up Argentina, could Brazil actually
34:22become Argentina if it goes through
34:24with all these cuts? Because when we
34:28talk about Milei, the ultra-far-right
34:31president, we saw what he did, and he
34:33even said he would take a chainsaw to
34:36spending. So, could Brazil turn into
34:39Argentina? I think we have every chance
34:42of bearing the economic and social cost
34:44of the program currently adopted in
34:46Argentina, without having the small
34:48benefit the program provided. Because
34:51what was Milei's program? Milei's
34:54program was meant to solve an inflation
34:56problem that Argentina had of 211%per
34:58year. Argentina had a very serious
35:00inflation problem. In Brazil, we have
35:034.2%. So, look at the difference. They
35:06implemented a radical program to try to
35:08reduce that 211%to zero. His promise
35:12was to bring inflation down from 211%to
35:14zero. He managed to bring it from 211
35:16to 33. We have an inflation rate of 4.2
35:19%. So, we could even think that the
35:23Argentine people were willing to pay a
35:25cost with rising unemployment, because
35:27unemployment went up, and wages lost 8%
35:29in purchasing power, even with this
35:31drop in inflation. Investment fell 11.1
35:35%in the latest data compared to the
35:37previous quarter. GDP has already
35:39fallen 2.9%. JP Morgan, an American
35:42bank, is already forecasting an
35:44economic recession, a crisis in
35:45Argentina. So you have a cost that is
35:48much higher than what was expected.
35:50Milei had promised that taxes would be
35:53reduced and that this would generate
35:55growth, generate more entrepreneurship,
35:58and generate a greater dynamic. No, he
36:00cut taxes for the wealthiest and for
36:03commodity-producing sectors, but that
36:06didn't turn into more growth. On the
36:08contrary, Argentina is in a crisis,
36:10entering a crisis, right? The sectors,
36:12the urban economy in Argentina is
36:14already in a crisis; the only things
36:16growing there are oil and
36:17agro-commodities; the rest of the
36:19economy is already in a deep crisis. So
36:22, you could still say, "Okay, the
36:24Argentines were willing because they
36:25wanted to reduce that inflation," but
36:27we don't have that inflation, we aren't
36:29in that scenario. And they even took
36:32out more loans from the IMF. Wow.
36:35>> So, Argentina took a 20 billion dollar
36:37loan from the IMF and has already spent
36:3915 of those 20 billion that were loaned
36:41,
36:42>> still owing in dollars,
36:44>> to try to—owing in dollars to try to
36:46stop this inflation from rising,
36:48because the dollar was rising there, so
36:50they used these loans to contain that
36:53rise in the dollar, which was important
36:55to hold back that inflation. And then
36:58Trump also came to help by buying pesos
37:00. So today they are totally dependent
37:02on the United States to maintain this
37:04program. Inflation itself, which was
37:06the only thing they achieved—that
37:08reduction from 200 to 30-something—
37:09they might also, if they aren't careful
37:11, enter a crisis soon, and inflation
37:13will rise again, right? And with an
37:15enormous cost, the population is
37:17dependent. So, if Trump doesn't come to
37:19help again or the IMF again to bail
37:22them out, they are in a situation of
37:24great international fragility with the
37:27possibility of a crisis. So, it doesn't
37:30even make sense to compare; it doesn't
37:31make any sense. Daniela Marques,
37:33Flávio Bolsonaro's economic advisor,
37:35said she wants to copy Milei. I am
37:38absolutely shocked, because, first,
37:41there is no context for this, and
37:43second, what we need in Brazil is more
37:46economic growth, more income, more
37:48opportunity, more wages, more
37:50purchasing power, and not a situation
37:52of, you know, a downward spiral like
37:55the one we're seeing in Argentina.
37:58>> Wow, totally. Laura, thank you so much,
38:01really. Look, there were many questions
38:03; I got the most out of it that I could
38:05here on this holiday. Thank you very
38:08much. And I really thank you for
38:10democratizing this access to economics,
38:12which has everything to do with finance
38:14.
38:14>> You, right, who democratize it every
38:16day. Thank you so much, Nati.
38:18>> I’m the one who should thank you.
38:19Look, Laura’s social media is here
38:20for you to follow. She’s been posting
38:22a lot on Twitter recently. Oh, so
38:26follow Laura’s social media too.
38:28Kisses, and goodbye.

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