After all the calculations, the first impression of many is confirmed: to be complied with, the rules for controlling public accounts announced by the Minister of Finance, Fernando Haddad, will require an increase in revenue. In other words, the tax burden, which in total is already high, may increase.
For many, this is an inconceivable path that would condemn the economy to stagnation. Others, however, understand that there is room to expand tax collection, allowing expansion of public spending without putting pressure on the public debt, which would help boost economic activity.
Framework depends on recipes
From the Michel Temer government, and later in the Bolsonaro government, curbing public spending was the way to try to control public accounts. Did not work. Not only did the economy fail to escape low growth, but the fiscal situation became even more fragile.
In the election campaign, Lula insisted in his speech that, if elected, on the issue of public accounts, he would try to expand spending, but with fiscal responsibility. This strategy would imply seeking increases in revenue. Therefore, there should be no surprise with the path chosen and now confirmed.
When designing the “fiscal framework” with which he will seek to at least stabilize the gross public debt in relation to GDP (Gross Domestic Product), Haddad had to balance spending control with Lula’s promises to increase expenses to “include the poor in the Budget” .
To close this equation, the way out found by the minister had already been given by Lula himself in the electoral campaign. It is about “including the rich in the Income Tax”, or in other words, raising collections and, consequently, the tax burden, but focusing on those who do not pay taxes or pay little.
Where is it possible to tax more?
It is uncertain whether the proposed anchor will manage, after four years, to stabilize the debt and, before that, increase spending, as the Lula government wants. But there is room for achieving this goal.
Although high in total volume, the tax burden, like income and opportunity in this country, is very unevenly distributed.. In Brazil’s dysfunctional tax system, lower-income earners end up paying more taxes than higher-income earners.
If an employee with a formal contract pays 27.5% of income tax, another taxpayer, who performs the same function, but under the service provider regime — the well-known PJ — pays just over 16% of the remuneration and or 10%, if enrolled in the Simples Nacional regime.
Not to mention the income originating from company profits and dividends, received by individuals, which are totally exempt from direct taxation.
It is possible to list more than a dozen cases in which revenue losses do not result in economic or social gains that justify them. See examples:
sports betting
exclusive investment funds
big techs
Online imports
Interest on equity
More than high, load is poorly distributed
In addition to carrying flagrant fiscal injustice, this strongly regressive system is economically inefficient. By taxing more those with less income, taxation needs to be heavier so that a volume of revenue is obtained that is able to minimally meet the broad social needs of a country with great poverty and a strong concentration of income.
Equivalent to just over 33% of GDP, the total tax burden is high compared to other emerging countries. It is closer to that of countries with a mature economy in Europe, but its composition makes it clear that it needs to be better distributed:
Taxation of consumption of goods and services. The Brazilian burden, with 15% of GDP, is the third highest in a group of 34 countries between developed and emerging countries.
Taxation of income, profits and capital gains. The Brazilian burden, at around 7% of GDP, is the fifth lowest in this group of 34 countries.
property taxation. The Brazilian load is close to the average of the 34 countries, with 1.5% of GDP, but well below countries like the United States, United Kingdom, France and even Korea, which tax properties at least twice as much as Brazil.
Correcting distortions and eliminating or reducing exemptions, Haddad envisions an increase of between BRL 100 billion and BRL 150 billion, something close to 1.5% of GDP, in revenue in 2024. It is not, in theory, an unattainable goal.
Only “tax expenditures” — a set of exemptions and reductions in special regime taxes, which mean, in practice, a loss of revenue — add up to R$ 450 billion in 2023, an amount equivalent to a robust 4% of GDP. The problem is how to undo benefits captured by powerful business segments and interest groups, well represented in Congress.
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