Haddad: We intend to give banks a shock in interest rates.
Fernando Haddad, the vice-presidential candidate on former President Lula's ticket, said in Aracaju that a potential PT government intends to "give banks a shock in interest rates"; "Interest rates will have to be lowered so people can take out loans, get credit, start a business, create jobs, and clear their name," Haddad stated; in other words, "the more interest the bank charges, the more tax it will pay. The less interest it charges, the less tax it will pay," he said.
By Tiago Pereira, from Rebuildables - One of the economic pillars of the PT's program is the "democratization of credit." The vice-presidential candidate on former president Luiz Inácio Lula da Silva's ticket, and his spokesperson, Fernando Haddad, has advocated for a reform of the Brazilian banking system, with the institution of progressive taxation to stimulate competition among large private banks. The objective is to force a reduction in the spread, which is the difference between what banking institutions pay as remuneration to savers and how much they charge to lend.
"We are going to give banks an interest rate shock. Interest rates will have to go down so that people can take out loans, get credit, start a business, create jobs, and clear their name," Haddad said this Wednesday (22), after participating in a motorcade in Aracaju. In other words, "The more interest the bank charges, the more tax it will pay. The less interest it charges, the less tax it will pay," the candidate explained.
The high interest rates charged by banks complicate the lives of companies that, with cheaper money, could take out loans to expand production, creating jobs. It is also a torment in the life of the citizen who, when indebted, finds himself strangled by interest rates exceeding 280% per year on overdrafts and credit cards.
According to economist Guilherme Mello, a professor at the State University of Campinas (Unicamp), this is a "simple but quite innovative" proposal because it establishes a general rule that will work for both public and private banks, as well as credit unions and fintechs (digital companies that provide financial services).
"Let's suppose that Banco do Brasil decides to lower its interest rate and the spread charged. Initially, it would have an expected profitability slightly lower than the market average. With this new treatment, based on the concept of tax progressivity, the bank does not lose profitability because it is compensated by a decrease in taxation, and it can pass this on to the consumer with cheaper credit," Mello explains.
With lower taxes and cheaper credit available, the trend is for the bank to increase its market share, forcing other institutions to follow suit. "What we are proposing is simply more competition. If the proposal is well understood, it is not a reason for any kind of violent reaction. It does not operate on the logic of state intervention and control; it is embedded in the logic of capitalist competition," the economist argued.
Economist João Sicsú, a professor at the Federal University of Rio de Janeiro (UFRJ), links the Workers' Party's proposal to the formulations of the American economist Sidney Wintraub, who conceived a similar solution in the 1970s to combat inflation caused by large companies that increased their workers' wages but directly passed the cost of this increase on to the final consumer.
"Wintraub identified that few companies had this market power, and those were precisely the ones operating in oligopolistic markets (where a small number of companies control a given market), and that they could sacrifice consumers without losing revenue. His proposal, then, was to impose a sacrifice on these companies by increasing their taxes. Therefore, the additional revenue acquired 'by force' from consumers would be lost, which would oblige companies not to use their market power by imposing whatever prices they wanted on consumers," explains Sicsú.
He says that applying Wintraub's concepts to the highly concentrated national financial system – the country's four largest banks (Itaú-Unibanco, Bradesco, Banco do Brasil and Caixa Econômica Federal) accounted for 78,51% of the credit market in 2017 – is an "excellent idea".
"In order to offer high spreads on credit operations, Brazilian banks charge high interest rates to customers. Thus, inspired by Wintraub, higher prices would imply higher volumes of taxes levied on oligopolies. Applied to the Brazilian case, this would mean: higher spreads (higher interest rates) would imply higher volumes of taxes," says the professor from UFRJ.