Gleisi: It's fair that those who earn more contribute more.

SÃO PAULO - Gleisi Hoffmann, Chief of Staff for much of Dilma Rousseff's first term, has once again attracted the attention of journalists and the market in recent weeks. A representative of the Workers' Party of Paraná in the Senate since taking office in February, she is responsible for leading one of the thorniest aspects of the government's fiscal adjustment agenda in the legislature and, incidentally, has picked a fight with the powerful lobby of financial sector companies by proposing even more bitter doses of a remedy that the market still refuses to swallow.

Rapporteur of Provisional Measure 675 in Congress, which originally deals with changing the tax rate paid by banks to the Union from 15% to 20%, Gleisi is fighting for financial institutions to pay 23% CSLL (Social Contribution on Net Profit), in addition to having tried to put on the table the end of the benefit of interest on equity, change the tax credits given to beverage industries in the Manaus Free Trade Zone and the reintroduction of PIS/Pasep and Cofins on parts used in wind turbines. In the case of the last three issues, the senator was forced to back down after a conversation with PMDB members last Tuesday (18). But she does not seem willing to do the same in concessions to make life easier for banks.

After another quarter of significant profits for the main institutions in the Brazilian financial system amidst the crisis, Gleisi is aiming for a more audacious austerity measure than that intended by Finance Minister Joaquim Levy. She is even more emphatically defending the idea that the cost of fiscal adjustment must also be shared by the "upper class." Behind her appeal for awareness among her parliamentary colleagues on this issue, the senator knows that resistance will be strong and that pressure from the business community will hardly alleviate the challenge. With each new signal coming from the joint committee in Congress that is still discussing the bill – which, if successful, will need to pass through both houses and presidential approval – stocks on the Bovespa respond with volatility. Even with a long process ahead, investors are trying to price in the possible scenarios that depend on the agenda defended by Gleisi. To better understand the changes of the previous day and what is to come, InfoMoney interviewed the senator. Check out the highlights:

InfoMoney - On Tuesday, information circulated that the PMDB would not vote in favor of ending interest on equity. Shortly after, you removed the subject from the text regarding Provisional Measure 675. How did that happen?

Senator Gleisi Hoffmann - I even mentioned in my presentation that the PLV (Conversion Bill) I wanted to present would relate to the transparency proposal I filed last week, which maintained the proposal to end the JCP (Interest on Equity), even if in three years. I believed that this, more than a matter of removing a tax benefit from capital, would also be a correction of a distortion in our tax system.

We had already corrected – with my favorable vote and defense – distortions in the area of ​​unemployment insurance, the salary bonus itself, and survivor's pensions. Therefore, it was not fair to fail to correct a distortion in the tax system that benefited capital, the remuneration of capital.

Obviously, due to the discussion about the payroll tax reinstatement, the House is quite tainted by pressure from the business sector. So, the leader of the PMDB [Eunico Oliveira (CE)] contacted me and asked that this matter not be included now. He argued that people haven't had time to process, discuss, and even price this into their planning. Seeing that I wouldn't be able to read the report, and therefore this would even affect the timeframe for processing the Provisional Measure here, I preferred to remove [the matter from the text]. I will present a bill, talk to the Treasury so that they can send a proposal in this regard, so that we can have a more timely discussion.

IM - And without hindering the progress of the Provisional Measure.

GH - Exactly.

IM - Whenever the creation of taxes for the "upper class" is discussed, obstacles are encountered that do not usually appear when rule changes affect the lower part of the social pyramid...

GH - These are more organized sectors, with greater influence and lobbying power in Congress. With more political strength.

IM - Do you see any possibility of a broader discussion about ending the JCP succeeding?

GH - I see. We may not be able to do this in the short term, but I think we can in the medium term. This is something that has existed for twenty years. It was created to be temporary, to replace the monetary correction of the Income Tax base, the discount on net capital, at the time of the Real Plan, and it became permanent. And, necessarily, it doesn't mean that there is productive investment in this sense. The high interest rate and the possibility of still deducting the TJLP (Long-Term Interest Rate) from your net worth from the Income Tax base are an attraction for the financial system. But I believe that the National Congress has to provide answers to these situations.

IM - Still on the subject of Provisional Measure 675, there was a change in the CSLL tax rate. The text signed by the Minister of Finance, Joaquim Levy, intended to raise the rate from 15% to 20%. Your report now mentions 23%. Do you foresee more difficulties with this bolder stance?

GH - I hope Congress approves it because, when the government's bill was submitted, we only had the banks' balance sheets for the first quarter. During the processing of the Provisional Measure here, we had the release of the banks' balance sheets for the second quarter, and it's a fact that they presented historical records in terms of profitability. The two main national private institutions – Bradesco and Itaú – had one of the highest second-quarter profit margins in their history. Banco do Brasil also had excellent profitability.

I considered this a new fact that would authorize us to increase the tax rate so that this sector, which, even with Brazil in crisis, has enormous profitability, could contribute more to fiscal adjustment. For this, I based myself on a tax rate that already applied to bank profits from 1992 to 1994 (23%). The highest CSLL (Social Contribution on Net Profit) rate we had was 30%, from 1994 to 1996, during Fernando Henrique's government. I didn't want to opt for that one. I opted for the second highest rate we had, which also occurred during a period of adjustment in the country and readjustment of finances.

IM - How will it be to seek approval for this matter at a time when the government is facing great difficulties in reorganizing its governance base, and also considering the fact that a large part of the parliamentarians relied on bank financing for their success in the last elections?

GH - Trying to raise awareness, because it's also true that a large part of the parliamentarians here had the support of labor unions and the general population. This didn't prevent a considerable number of parliamentarians from approving measures that altered unemployment insurance, the salary bonus, and death benefits, understanding the country's situation. I hope that the National Congress will also have this public spirit in relation to the banks. It's a time when everyone needs to contribute to the adjustment. And it's fair that those who earn more contribute more.

IM - Every now and then, another issue related to correcting inequalities in the tax system is discussed: the Wealth Tax. I would like you to talk a little about it.

GH - I'm in favor. We still have to define the Wealth Tax and the Inheritance Tax. Recently, I asked the [Legislative] Consulting office for a study. Developed countries, for the most part, adopt this. The United States, for example, has a heavy tax burden on inheritances – which gives them the means to have private investments in education, including healthcare.

You can choose to pay the tax or make an investment in these areas. Brazil is a country with one of the largest income disparities and has never managed to tax it. It's bad. We have made progress in social policies, we have managed to combat hunger and poverty in the country, increase our minimum wage, but we have a structural problem, which is income distribution. And it is a political decision that must be made regarding this. The instrument of the State is taxation.

Without wanting to discourage investors and investments, I think we need a distinction. Taxation on labor cannot be the sole foundation of public finances. Today, that's basically the case. There's a high tax burden on labor and a low tax burden on capital.

IM - So it's possible to reconcile them?

GH - I think we need to seek, especially since modern economies strive for this, balance. If we want a less interventionist state in the economy, how about we start there, reducing subsidies on capital remuneration?