Alckmin embraces total privatization.

SÃO PAULO (Reuters) - Brazil must open its economy, review tax benefits, privatize state-owned companies and leave infrastructure and sanitation investments to the private sector in order to resume economic growth, said economist Pérsio Arida, one of the authors of the Real Plan and economic coordinator for PSDB presidential pre-candidate Geraldo Alckmin.

A proponent of a strongly liberal agenda and a Ph.D. from the Massachusetts Institute of Technology (MIT), Arida explains that it is possible to eliminate the current primary deficit in two years and produce a fiscal surplus before interest payments equivalent to 2,5 percent of GDP in the last year of his term.

"Ensuring stability in public finances is a precondition for everything else," the economist said in an interview with Reuters.

To achieve this goal, the PSDB candidate's term would begin with sending pension and tax reforms to Congress, removing economic issues from the Constitution to make economic policy more flexible, cutting spending, privatizations, reviewing all tax breaks and subsidies, and establishing a faster payment schedule for BNDES (Brazilian Development Bank) to the National Treasury. The budget would also become mandatory.

Immediate tax changes would involve taxing currently exempt funds and securities, cutting corporate taxes such as income tax and social security contributions on profits, while simultaneously introducing taxes on cash distributions to shareholders. In the case of reform, the goal would be to consolidate federal taxes into a Value Added Tax, levied only at the destination to reduce the tax burden on exporters.

“We have to adapt to the world and quickly… the world is rapidly lowering corporate taxes,” said Arida, citing the average 25 percent corporate tax rate in OECD countries, compared to 34 percent in Brazil.

"A drastic reduction in corporate tax and taxation of dividends to compensate is essential," he stated.

“When I say no to subsidies, no to tax exemptions, ultimately I am benefiting the citizen as a whole, the taxpayers who are paying for the benefit, but I am also benefiting all the other businesspeople who do not have access to Brasília, which is the bulk of the country.”

According to Arida, it is necessary to review special programs such as Repetro, for the oil industry, and Rota 2030, recently launched by the Michel Temer government for automakers.

"We don't like either program, just as we don't like any artificial attempt to limit competition," he noted, stressing that incentive programs should have a fixed duration and an evaluation at the end.

"It doesn't make sense... it's a good way for the multinational company operating in Brazil to be profitable, but it's bad for the country and it's bad for the Brazilian consumer," he added, referring to the automotive program.

The platform of the PSDB (Brazilian Social Democracy Party) pre-candidate, who appears with 6 percent in the CNI/Ibope poll (in the scenario without Lula), foresees less state intervention in the economy, not only through the sale of state-owned companies, but also through concessions in the areas of infrastructure and sanitation to attract national and, especially, foreign private capital from any country, "because this xenophobia makes no sense."

"DECEPTION"

Arida refers to criticisms from the PSL presidential candidate, Congressman Jair Bolsonaro, who leads in the polls (in scenarios without Lula), and who opposes increased Chinese investment in Brazil. The economist says that Bolsonaro has a right-wing discourse, but in practice he wields the same banners as the left and has a statist bias.

"Bolsonaro is where he's always been: with the left... It's a sham, only those who don't want to see it can't," said the economist, citing the congressman's recent votes against positive credit reporting and in favor of creating 300 new municipalities.

Another factor bringing Bolsonaro closer to the left, in Arida's view, was his party's legal action, like that of PSOL, to prevent an increase in pension contributions for civil servants in Rio de Janeiro, which is facing serious cash flow difficulties.

"Look how they vote now, during the election period... This story that the Bolsonaro family is liberal is a hoax, ask him what he thinks about privatization... he says that there are strategic sectors, that they have to defend themselves from foreign capital, his liberalism is a hoax."

Bolsonaro's biggest backer to the financial market, economist Paulo Guedes, Ph.D. from the University of Chicago, told Reuters that Bolsonaro no longer holds a statist and nationalist viewpoint, otherwise they wouldn't be close. [nL2N1SZ0QW]

Investors and financial market operators attribute part of the appreciation of the dollar against the real and of future interest rates to doubts about the fiscal responsibility of the next government, which will face its sixth consecutive year of fiscal deficit. [nL1N1U71V0]

GROWTH AND JOBS

The agenda proposed by Arida for resuming growth in a potential Alckmin government includes restoring business confidence, defining regulatory frameworks and greater legal certainty to stimulate investment in infrastructure and basic sanitation, as well as opening up the economy through reduced tariffs and increased competition from foreign services, including in the financial sector.

"Today, the Union invests 1,7 percent of the Budget. It's very little, but it won't increase, neither this year nor over the next four years. So, all investment will have to come from the private sector," he summarized.

"The biggest infrastructure problem in the world is the risk of building a railroad and having the train run without cargo. In Brazil, this possibility doesn't exist; it's all about debottlenecking."

According to Arida, it is necessary to "resist the temptation" to attack unemployment with specific policies.

"Jobs don't fall from the sky, it's not the government that creates jobs, it's the private sector that creates jobs, and the best way to solve the unemployment problem is by increasing the private sector's confidence to make investments," he said.

If elected, Alckmin could privatize state-owned companies such as Correios (the postal service), Valec (the railway company), and Companhias Docas (the port authorities), among others, through a presidential decree. The former governor of São Paulo is not expected to privatize Banco do Brasil (the bank responsible for privatizing the state-owned bank).BBAS3.SA) and Petrobras (PETR4.SA), but is in favor of ending the monopoly effectively exercised by the state-owned company in the refining and part of the distribution of refined products.

The economic program also envisions the pursuit of digital solutions, such as a national blockchain that completely eliminates the need for notary offices and a mobile application for the public to evaluate public services, such as schools and hospitals, which would be developed by startups in partnership with the government, similar to what the United Kingdom has done.