Haddad predicts an impact of R$32 billion on the budget with tax cuts; IBPT says that payroll encumbrance can lead to inflation

The Minister of Finance, Fernando Haddad, predicts an impact of up to R$32 billion on this year's budget with tax cuts. According to the minister, the numbers were calculated based on the impact of measures such as the lifting of the veto on payroll tax relief and the Emergency Program for the Resumption of the Events Sector (Perse), among others.

+Reliefs amount to R$124.979 billion in the year up to November, says Revenue

Of this total, R$12 billion corresponds to the extension of the payroll tax exemption, extended to 2027. R$4 billion relates to the reduction in the Social Security contribution rate for small municipalities and R$16 billion comes from Perse. At the end of last year, the government issued a provisional measure (MP) that will progressively extinguish the benefits.

Haddad announced today, the 17th, that he will meet this Wednesday (17th) with President Luiz Inácio Lula da Silva to discuss the results of the first negotiations on the topic with the President of the Senate, Rodrigo Pacheco. The minister also said that he will speak personally with the president of the Chamber of Deputies, Arthur Lira, this Thursday (18) or Friday (19). Haddad admitted to having already spoken to Lira on the phone.

Last Tuesday, Haddad met with the Minister of Institutional Relations, Alexandre Padilha, with the leader of the Government in the Chamber, deputy José Guimarães (PT-CE), and with the leader of the Government in the Senate, Jacques Wagner (PT- BA), to discuss the legislative agenda in the economic area for 2024. In addition to the search for an agreement on the MP that will reinstate the payroll, the meeting discussed the regulation of tax reform and measures of the Ecological Transformation Plan, such as the carbon.

Graduality in exemptions

Reaffirming his commitment to fiscal balance this year, Haddad defended a gradual reduction in payroll taxes. According to him, the procedure follows the tax reform model, which establishes the gradual reduction of tax benefits.

“We made the proposal to do the same with the tax benefit as was done in the tax reform. If the tax reform is adopted, all benefits will be extinguished and diluted over time, precisely so that the sectors would not be affected in the short term”, explained the minister.

Regarding Monday's meeting with Pacheco, Haddad stated that the president of the Senate made a “proposal for forwarding” the provisional measure. The minister did not give details, stating that the solution still needs to be communicated to President Lula and Arthur Lira. He only said that “final conversations” will take place by the end of this week.

Despite the negative reaction from parliamentary fronts to the issuance of the provisional measure that provides for the progressive repayment of the payroll to 17 sectors of the economy and revokes the reduction in Social Security contributions to municipalities, Haddad denied discomfort with the Legislative Branch. “People try to create animosity that does not exist between the Powers,” he declared.

In the interview, the minister said that the objective of the MP is to allow the country's growth with sustainable interest rates, arguing that it cannot harm the entire society with the cost of tax relief to give an advantage to a specific sector.

Negotiations

The Minister of Institutional Relations, Alexandre Padilha, said that negotiations have just begun, but did not give a deadline for a solution to be reached. As the MP will only actually come into force in April, contributions can only be increased 90 days after the publication of the MP or sanction of the bill, conversations could last for months.

“The MP was just the first step to starting the dialogue”, said the minister.

He admitted the discussions were complex, but said he was optimistic given the approval of several difficult measures last year.

“Nobody believed in the approval of the Carf project [Conselho Administrativo de Recursos Fiscais]the taxation of offshore companies and MP 1,185 [que limitou ajudas financeiras a estados]but we managed to get approval with a lot of conversation”, declared Padilha, who reaffirmed the economic team’s commitment to fiscal balance.

In relation to small municipalities, deputy José Guimarães said that the government is studying financial aid for city halls with cash difficulties to contribute to the National Social Security Institute (INSS).

“We know about the difficulties of small municipalities, but we can provide help, as we did with the states last year,” said Guimarães.

Removal of payroll tax exemptions impacts companies

For the director of the Brazilian Institute of Planning and Taxation (IBPT), Carlos Pinto, a possible increase in companies' payroll is a harmful measure that could even lead to inflation.

“The measure is harmful, antagonistic to what businesspeople see. The payroll tax increase for companies will have a significant impact on the final price of the product on the shelf, including inflationary consequences”, he comments.

In his assessment, at a time when the country is showing signs of recovery and growth, the government should not adopt measures that have an effect on the tax burden, which is already considered high.

“The IBPT is contrary to any measure that impacts an increase in the tax burden. When you burden the payroll there is this impact, mainly for 17 sectors of the economy. Therefore, we see the president's veto with great fear and we hope that there will be a balance in the accounts, but for the development of the economy, and not burdening companies”, he adds.

According to the executive, there are other ways in which the government can seek resources, such as taxing the import of products that cost less than US$50, and the application of progressive income tax.

“Fiscal balance is not linked to payroll reimbursement. They should take measures to, for example, increase income tax for those who earn more. The path to encumbering companies is not the same as that developed countries have historically taken to become what they are today”, he adds.