Federal government retains around 30% of IR and IPI collection – 11/30/2023 – What tax is this

Economists Fabio Giambiagi and Guilherme Tinoco recently released the paper “Fiscal policy in Brazil from 1981 to 2023: a historical retrospective”.

Looking for a hook to help me publish this tax blog, I found the chapter on the increase in the tax burden — from 14% of GDP in 1947 to 33.7% in 2022.

The 88-page publication could be a book, but as the authors explain, “the difference of the work involves the fact that the text is more succinct (…) and can be fully available on the internet.”

It is a historical record with a vast set of data, often impossible to find in full on official websites, according to the authors.

They tell, for example, the case in which a person from the National Treasury turned to one of them, looking for data from the beginning of the 1990s, not available on the institution’s website, whose series starts in 1997.

Returning to the topic of taxation, I found information about the sharing of federal tax resources in a footnote.

The sharing of revenues from Income Tax and Tax on Industrialized Products in favor of states and municipalities grew from 12% at the beginning of the military government to 50% after the 1988 Constitution.

Of what remains for the Union, 18% must be spent on education. There is also a portion of net revenue allocated to health.

“Thus, in practice, the federal government retains only around 30% of the IR and IPI collection. In this way, the Union’s main tax collection, IR, had this function dramatically reduced”, say the authors.

According to them, when the federal government uses IR for fiscal adjustment purposes — something we are currently experiencing [nota minha]— 70% of the revenue is automatically transformed into spending by states, municipalities and education and health expenses, “which largely nullifies the contractionary effect of the adjustment.”

The document, which also provides data on the evolution of federal government expenses and the evolution of the quality and transparency of this data, is available on the BNDES (National Bank for Economic and Social Development) website at this link.

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