Lula’s Party Proposes Escaping Economic Crisis With Past Policies

(Bloomberg) -- Brazil’s Workers’ Party wants to return to its policies of government intervention and public spending, even though they helped plunge Latin America’s largest nation into the worst recession.

If it were to win the October presidential race, the Workers’ Party would put the economy back on track by scrapping spending caps, fueling public works, and offering cheaper credit, Guilherme Mello, one of the party’s economic advisers told Bloomberg in an interview. The PT, as the party is called by its Portuguese acronym, would also tax certain financial applications to avoid currency speculation.

Unlike most other parties bidding for the presidency, the PT doesn’t see the need to contain rising expenditures by reducing pension benefits, which account for the bulk of the country’s budget woes. Instead, the argument goes, economic growth will generate additional revenue and shore up public accounts.

"If there’s no return to economic activity, you can do all the fiscal reform you like, all the pension reform you like, but the ends won’t meet," Mello said.

The party’s iconic leader, ex-president Luiz Inacio Lula da Silva, is its official presidential candidate. But as he is in jail and likely to be barred from standing, former Sao Paulo mayor Fernando Haddad looks set to run in his stead. Polls show Haddad could garner the votes to make it into a second round, run-off vote.

The PT ruled Brazil from 2003 to 2016. If it were to return to power, the party would immediately strengthen the flagship welfare program Bolsa Familia, prompt state banks to offer cheaper and longer loans, and restart public works.

"You need to use the state’s coffers at this moment to promote the type of measures that generate jobs."

No Ceiling

The PT would scrap a constitutional cap on government spending, and unlike other parties, has set no target date to balance the country’s public accounts.

"You’ve got to show you are building a path, this will reduce the deficit and encourage growth but it’s too complicated a relationship to say it will be solved in one or two years."

In order to help finance spending, the PT is considering taxes on large financial flows, inheritance, profits and dividends.

Taxes will also be used to manage financial markets. Banks with higher spreads between their loan and deposit rates would pay more taxes. Similarly, short-term speculative capital would also be taxed, Mello said.

To contact the reporters on this story: Rachel Gamarski in in Brasilia at rgamarski@bloomberg.net;Fernando Travaglini in in São Paulo at ftravaglini@bloomberg.net;Julia Leite in Sao Paulo at jleite3@bloomberg.net

To contact the editors responsible for this story: Raymond Colitt at rcolitt@bloomberg.net, Bruce Douglas

©2018 Bloomberg L.P.