Haddad says there will be no general tax increase, but privileged sectors will be taxed.

247The Minister of Finance, Fernando Haddad, denied this Thursday (30), during the presentation of new tax frameworkThe government stated that it will not create new taxes or increase existing rates to comply with the new fiscal rules. However, the minister assured that some tax breaks for specific sectors may be reversed.

"If by tax burden we mean the creation of new taxes or an increase in tax rates, that is not on our horizon. We are not thinking about creating a CPMF [former tax on financial transactions], nor about increasing payroll taxes," the minister declared when presenting the draft supplementary law for the new fiscal framework.

According to a report by Agência Brasil, even without the creation of new taxes, the minister said that some sectors that have benefited from tax breaks for decades may have their tax incentives reviewed. In some cases, new sectors that are not yet regulated may be subject to taxation, such as online sports betting.

>>> Haddad: New fiscal rule provides mechanism for phases of economic expansion and recession.

“We have many sectors that are excessively favored by decades-old rules. Throughout the year, we will be implementing measures to give substance to this announcement. Yes, we have sectors that are already benefiting and new sectors that are not regulated [such as electronic sports betting],” the minister stated. “We will close the loopholes of Brazilian patrimonialism and put an end to a series of abuses that have been committed against the Brazilian State,” he emphasized.

According to the minister, a general review of tax incentives will benefit the entire population and allow the Central Bank to reduce interest rates in the future. Haddad urged the National Congress to be sensitive to the need to review tax benefits – currently around R$ 400 billion per year – the review of which was mandated by a 2021 constitutional amendment.

“If those who don’t pay taxes start paying, we will all pay less interest. That’s what will happen. Now, for that to happen, those who are outside the system have to come into the system. Congress needs to be sensitive enough to realize how much its desire has been undermined in practice by abuses and correct these distortions,” he emphasized.

>>> The fiscal framework, although its parameters have not yet been calibrated, seemed "quite reasonable," says Campos Neto.

Credibility

According to the Finance Minister, the flexibility brought by the new framework during unforeseen economic moments will provide rules and greater credibility. Haddad stated that the rules combine what he called "the best of both worlds," by combining provisions of the Fiscal Responsibility Law with a more flexible spending limit than the old spending cap.

"We have charted a consistent trajectory for primary surpluses in which spending will necessarily follow revenue, thus expanding the scope to ensure the sustainability of public finances," he explained.

>>> Campos Neto states that the Selic rate should reach 26,5% to meet the inflation target.

Next, he said that the 70% spending growth limit will be calculated based on revenue growth over the 12 months ending in July, before the following year's budget is sent to Congress. According to the minister, this change is necessary to avoid a recurring problem in the Brazilian budget: the inflation of revenue estimates by Congress. 

He justified the band in the primary result target – a tolerance margin of 0,25 percentage points (pp) of Gross Domestic Product (GDP), up or down, based on the need to avoid instability in budget execution near the end of the year.

>>> Gleisi suggests dismissing Campos Neto and the Central Bank's board of directors for "insufficient performance" in the face of inflation.

"The [primary surplus] target also has a small band to prevent uncontrolled spending at the end of the year, or spending more without planning, or cutting expenses haphazardly," he explained.

The minister did not specify a date for sending the supplementary bill for the new framework to Congress. According to Haddad, the government will use the Easter recess to carefully draft the text. Minister Tebet reported that she has made two secretaries – the Federal Budget Secretary and the Executive Secretary of the Ministry of Finance – available to assist in drafting the bill.

Quality

Also present at the announcement of the new fiscal framework, the Minister of Planning, Simone Tebet, reinforced the sentiment regarding the predictability and credibility of the new rules. She stated that the government intends to work to improve the quality of public spending.

“After the initial figures came in, we saw that this fiscal rule is credible, feasible, and capable of complying with it. Because it has flexibility and allows us to make adjustments to reach the targets. We are convinced that, if Congress approves this framework, we will be able to achieve the goal: to reduce expenses as much as possible while maintaining the quality of public spending. And we will seek to eliminate this deficit and have the possibility of a surplus in 2025,” he promised.