Brazil’s economic team has mapped out 300 billion reais ($59 billion) in revenue-boosting measures to help sustain its new plan to shore up public finances without raising taxes, according to Finance Minister Fernando Haddad.
(Bloomberg) — Brazil’s economic team has mapped out 300 billion reais ($59 billion) in revenue-boosting measures to help sustain its new plan to shore up public finances without raising taxes, according to Finance Minister Fernando Haddad.
Not all of them will be deployed immediately, and some may not even be needed, he said said Tuesday in an interview. The pace of implementation is also crucial: Haddad doesn’t want government revenue to grow too fast because, according to the new fiscal proposal, public spending would grow faster as well, without the possibility of future cuts.
“We have a very well defined timeline, and each measure should come at the right time,” he said in his cabinet office in Brasilia. “We’ll approve a tax reform and then we’ll recalibrate those measures at year-end.”
The new fiscal plan unveiled by Haddad on March 30 sets both a ceiling and a floor for the expansion of public expenditures, limiting it to 70% of revenue growth, or 50% when the government fails to meet its budget surplus targets. Primary spending, however, will always increase between 0.6% to 2.5% a year, even if the economy shrinks.
The plan also includes small but growing primary budget surpluses in order to stabilize public debt. It targets a primary fiscal surplus of 0.25% to 0.75% of gross domestic product for 2025 and 0.75% to 1.25% of GDP for 2026. For 2024, the goal is to eliminate the primary fiscal deficit, which doesn’t take into account interest payments. But the range of tolerance would still allow for a gap of 0.25% of GDP.
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The proposal is crucial to President Luiz Inacio Lula da Silva’s efforts to win over investors, who have worried about the health of public finances since the leftist leader won congressional authorization to boost public spending after his narrow election victory in October. Lawmakers granted the new president the ability to bypass Brazil’s so-called spending cap, which will now be replaced by the fiscal framework.
Tax on Exclusive Funds
Haddad said he intends to implement only three measures at first: taxes on small e-commerce purchases made abroad and online gambling, as well as the closing of a loophole related to fiscal credits used by many companies. Those are expected to boost public revenue by as much as 115 billion reais a year.
If necessary, the government could also impose levies on dividends and exclusive funds, usually used by wealthy individuals who hire an asset manager to develop personalized investment strategies. But first, the economic team wants to focus on the tax reform that’s currently being debated in congress, Haddad said.
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Brazil’s gross debt would reach 75% of GDP by the end of 2023, from nearly 73% in February, according to the finance ministry’s estimates. With the new fiscal framework approved, that ratio would continue climbing to 75.7% in 2024 before dropping to 75.05% by 2026, according to ministry’s base-case scenario.
Worries about swelling debts have helped fuel inflation expectations, which in turn have caused Brazil’s central bank to keep the country’s benchmark interest rate at 13.75%, a six-year high.
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