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Unfavorable environment for reforms in Brazil, says former solicitor general
Brenno Grillo . Nov 25, 2019
Solicitor General Luiz Inácio Adams. Photo: Valter Campanato/ABr
The agenda of economic reforms proposed by President Jair Bolsonaro is “necessary” to allow for Brazil to develop.
That is the not view of a member of Mr. Bolsonaro’s economic team, but rather Luís Inácio Adams, a lawyer who served as Brazil’s Solicitor General under former President Dilma Rousseff, of the Workers’ Party.
Despite supporting the Economy Ministry’s agenda, Mr. Adams is skeptical about whether or not the government can pass reforms to the tax system and its public service. “A tax reform is highly unpopular with state-level administrations because nobody wants to lose revenue. And the migration to a new system would take ten years—it would be challenging to keep two simultaneous and parallel tax systems.”
Mr. Adams spoke to The Brazilian Report on this and a number of other topics. You can read the highlights of this interview below. (Disclaimer: this interview was edited for brevity and clarity.)
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<h4>This week, the Supreme Court is expected to conclude a trial on whether or not tax authorities are allowed to flag suspicious financial transactions to law enforcement prior to a court order. What are you expecting from this trial?</h4>
<blockquote class="wp-block-quote"><p>The information provided by anti-money laundering agencies is paramount to fighting corruption. Making people accountable for white-collar crimes is indispensable in any democratic system, and it generates credibility and stability [for investors]. Brazil, however, is still evolving in this process. Our legal system has traditionally required judicial authorization for accessing people’s private data—as a way to protect citizens’ rights to privacy.</p><p>We had several dictatorial regimes that allowed abusive practices by state agents. The Supreme Court now comes to determine the threshold to prevent auditors from “fishing” for wrongdoings until they find something, which Supreme Court Justice Ricardo Lewandowski called “snooping.”</p></blockquote>
<h4>But is that a real problem in Brazil?</h4>
<blockquote class="wp-block-quote"><p>Unfortunately, it exists, and we have seen it multiple times. Controlling that is essential to legitimize investigations. Auditors can’t just scrutinize taxpayers out of curiosity, or a particular interest in probing high-profile people. This breaks the impersonal principle of the democratic state. The state seeks facts and information, not recipients. When it starts to target specific names, the state becomes more political than technical.</p></blockquote>
<h4>What about the government-sponsored reforms?</h4>
<blockquote class="wp-block-quote"><p>The government has taken some positive initiatives, such as reforming our pension system. All recent administrations made some sort of adjustments—which proves the necessity of fiscal balance. Other proposals, such as a tax reform, are also necessary. Brazil must take the burden off of small business owners’ backs. The Lula administration began doing so by creating a simplified form of taxation for small businesses, the so-called <em>Simples Nacional</em>. </p></blockquote>
<h4>The government’s reforms require constitutional changes. Will the government be able to pass them?</h4>
<blockquote class="wp-block-quote"><p>There are some political obstacles, such as a premature debate about Jair Bolsonaro’s succession after just one year into his term. This shows how difficult it will be for him to form broader coalitions. We already have four potential presidential candidates: São Paulo Governor João Doria, businessman and TV host Luciano Huck, Lula, and Mr. Bolsonaro, who has talked multiple times about re-election.</p></blockquote>
<h4>Why has a tax reform not yet been presented?</h4>
<blockquote class="wp-block-quote"><p>The <a href="https://brazilian.report/power/2019/05/23/brazil-tax-reform-congress/">tax reform</a> was not presented because there is no consensus around the best formula. The government-backed proposal is anchored on a tax on financial transactions—but they had to back down on that. House Speaker Rodrigo Maia is working on another proposal, more focused on simplifying taxes on multiple federal, state, and municipal-level taxes, which could generate legal challenges. So I don’t think that waiting to present a reform is a political calculation per se, but rather an attempt to build up support around a proposal.</p><p>The problem with these reforms is the timing. The reforms recently proposed will go to a vote in 2020, which is a [municipal] elections year. And this brings a political element, because, albeit necessary, none of these projects are popular with voters. And the tax reform is also unpopular among state-level administrations, because no one wants to lose revenue.</p></blockquote>
<h4>Could Economy Minister Paulo Guedes’ new “<a href="https://brazilian.report/power/2019/11/06/paulo-guedes-wants-completely-reform-brazilian-state/">federative pact</a>” help create such consensus?</h4>
<blockquote class="wp-block-quote"><p>Our system is only a federation in name. Our tax framework is shared—the federal government collects it, dishing it out to states and municipalities. And while we have a decentralized system in terms of jurisdiction, the federal government assumes a lead role on most issues.</p><p>Brazil’s state system would be inconceivable in other countries, due to its over-centralization and many imbalances. But I’m not sure the government’s proposed renegotiation would tackle these problems.</p></blockquote>
<h4>Why is that?</h4>
<blockquote class="wp-block-quote"><p>One of the major problems in state- and municipal-level administrations is that they are highly dependent on revenue from the federal government. In Brazil, we have cities that do not raise money from taxes and only rely on the money that comes from the distribution of state or federal taxes.</p></blockquote>
<h4>Mr. Guedes also wants to overhaul Brazil’s public service. How likely will that reform pass without being severely watered down?</h4>
<blockquote class="wp-block-quote"><p>I have already advocated for civil service reform. We have to rethink the model of stability and meritocracy among civil servants. I see some ideas that I had proposed in the past in the government’s proposal. For example, career simplification. It is not right to have different rules depending on which branch of government [the servant works in].</p><p>But dealing with the bureaucratic framework of a country right before elections is very complex. The municipal election is what allows congresspeople to build a strong network of support for when their own elections come two years later.</p><p>We must not forget that support from mayors and city councilors is important to congressional candidates. And this makes the reform risky. </p></blockquote>
<h4>How do you see Congress’ role as opposed to the government’s?</h4>
<blockquote class="wp-block-quote"><p>Congress has taken initiatives of its own and commands the legislative agenda like never before. Past governments have always enjoyed agenda-setting powers and Congress always followed suit. This change in dynamics is good because it strengthens other branches of government and democracy itself. The leaders in both the House and Senate have played a good role in conducting these discussions.</p></blockquote>
<h4>How strong are Brazilian institutions, in these polarized times?</h4>
<blockquote class="wp-block-quote"><p>Brazil is living through the greatest challenge to its democracy. The left has always been present organically in the political mainstream, but we had never seen that with the right, yet. It used to be dispersed, but it is good to have a right-wing with grassroots mobilization because that allows things to be more transparent. The problem is when an ideology attacks democracy.</p><p><a href="https://veja.abril.com.br/mundo/bolsonaro-exalta-ditadura-de-pinochet-no-chile-e-ataca-pai-de-bachelet/">Praising dictators</a> like [Chile’s former President General Augusto] Pinochet is a problem for democracy. Flirting with this kind of past goes against values we have achieved. But institutions such as Congress or the Judiciary are quick to respond to such events.
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