Haddad crusades against Dilma and Mantega’s inheritance

The crusade that the Minister of Finance, Fernando Haddad, launched against the so-called payroll tax exemption is, strictly speaking, a fight against a “cursed” legacy of his own party, the PT.

The benefit currently granted to companies in 17 sectors was created in 2011 by then President Dilma Rousseff (PT) and her Finance Minister, Guido Mantega.

Haddad’s fight to end the tax incentive inherited from Dilma and Mantega contrasts with the effort of President Luiz Inácio Lula da Silva (PT) to rehabilitate the two supporters. Lula managed to place Dilma in charge of the New Development Bank, the Brics Bank, and recently tried to elevate Mantega to the presidency of Vale, a mining company privatized almost three decades ago.

The justification for tax relief, when it was created, was that reducing the business tax burden would encourage new hiring, reducing unemployment and informality rates in the labor market.

Thus, through a provisional measure (MP), later converted into law, permission was granted for some companies to pay rates of 1.5% to 2.5% on gross revenue instead of 20% on the payroll as employer social security contribution.

After undergoing modifications and being extended several times, the tax exemption was expected to end on December 31, 2023. Against Haddad’s wishes, senator Efraim Filho (União-PB) proposed, through the Bill (PL ) 332/2023, extend the duration of the benefit for another four years, until the end of 2027.

The benefit currently covers 17 sectors that are among the most employing in the country:

• clothing and clothing;
• footwear;
• construction;
• call center;
• communication;
• construction companies and infrastructure works;
• leather;
• manufacturing of vehicles and bodies;
• machines and equipment;
• animal protein;
• textile;
• information technology (IT);
• communication technology (ICT);
• integrated circuit design;
• metro rail passenger transport;
• public road transport; It is
• road freight transport.

A People’s Gazettea communications company, benefits from the exemption.

In the Senate, Senator Ângelo Coronel (PSD-BA) also added an article that reduces the social security contribution from the payroll of municipalities with a population of less than 142.6 thousand inhabitants from 20% to 8%. The government tried to negotiate, but was unable to prevent the approval of the PL by deputies and senators, sealed on October 25th.

Annoyed, the minister advised Lula to veto the text entirely, on the grounds that it contradicted the public interest and was unconstitutional, since the proposal would create a revenue waiver without presenting a statement of financial impact for the following years.

The president’s endorsement of Haddad’s recommendation would help in the minister’s battle to increase the Union’s revenue and pursue the goal of zeroing the fiscal deficit in 2024. The tax exemption led to a tax waiver of almost R$9.4 billion last year , according to official data from the Federal Revenue. With the extension of the benefit to around 3,000 city halls, the impact would double this year.

After the publication of the presidential veto in the official gazette, on November 24, the head of the Treasury went public to defend the decision and said that he would present parliamentarians with an alternative measure, which would not affect companies too much, but would guarantee an increase in revenue for the government. .

At the time, he questioned the argument of companies and unions who said that the veto would lead to an increase in unemployment in the benefited areas. “They were talking about hiring when the exemption was made, which also didn’t happen,” he said, refuting Mantega and Dilma’s thesis at the time the exemption began.

On December 14, however, Lula’s veto was overturned by deputies and senators. The president of the National Congress, senator Rodrigo Pacheco (PSD-MG), defended the decision. “[A desoneração] It is a policy that guarantees high employability. We are in a scenario of combating unemployment. In my opinion, I consider the extension of the exemption to be appropriate,” he said.

But Haddad did not give up. In the midst of the parliamentary recess, on December 28, the government published MP 1,202/2023, which establishes a gradual reimbursement of sectors that count on the tax discount, in an attitude seen by the opposition as disrespect for the Legislative decision.

In January, after discussing the matter with Haddad, Pacheco made a statement implying that the government would waive the reimbursement. “The payroll tax exemption, having been a law approved by Congress, and with a veto overturned, will be valid. There is a commitment from the federal government to reissue the MP [medida provisória]removing the tax exemption from the text”, stated the president of the Senate during the Brazil Economic Forum, in Zurich, Switzerland.

However, last week, in an interview with the program Roda Vivafrom TV Cultura, the Minister of Finance denied having given up on the reimbursement and said that he will meet again with Pacheco and the president of the Chamber of Deputies, Arthur Lira (PP-AL), to defend the measure.

“I know that [a reoneração] It is affecting sensitive sectors, which have great power to assert their opinion. But let’s not let ourselves be carried away by this type of feeling”, stated the minister. In the interview, he again claimed that the tax waiver did not result in an increase in hiring, as representatives of the benefiting sectors, both on the companies and workers side, argue today.

“Out of every ten economists, at least nine agree that these tortoises, these privileges, need to be reviewed, especially because the majority did not deliver what they promised when they were inaugurated”, he declared.

On the 18th, in line with Haddad’s statements, the Ministry of Finance published a report classifying the tax exemption as expensive and inefficient. The text states that the policy is “unconstitutional, complex, not very transparent, and without proven effectiveness”, and contains statements from economists who point out problems with the tax incentive.

In 2011, Mantega even defended the end of employer contributions on payroll

Then Minister of Finance, Guido Mantega, in 2011, defended the possibility of even eliminating the employer’s Social Security contribution on salaries. At the time, full exemption was discussed within three years. “Depending on the case, the reduction in this labor cost encourages the formalization of labor or the hiring of more employees with a formal contract,” he said.

The end of the employer quota did not come, but, through Provisional Measure (MP) 540/2011, converted into Law 12,546/2011, the contribution, which was 20% of the payroll for all sectors, became 1 .5% on gross revenue for sectors such as footwear, clothing and leather. For information technology (IT) and information and communication technology (ICT) companies, the percentage became 2.5%.

Part of the so-called Plano Brasil Maior, which also granted tax exemption to products and established differentiated tax regimes, the tax exemption was subsequently expanded to include more and more companies. In the following year, through MP 563/2012, the hotel, furniture, auto parts, naval and aviation sectors were included, as well as call center companies and integrated circuit projects.

In 2014, when Dilma was running for re-election, the total number of sectors benefiting was already at 56. The following year, Mantega’s successor at the Treasury, Joaquim Levy, proposed reducing the discount, increasing the rates for the companies covered. He classified the benefit granted so far as a “joke” that “proved to be extremely expensive”.

Levy’s arguments were similar to those used today by Haddad. “This joke [desoneração da folha] It costs us R$25 billion per year, and several studies show us that this has not protected jobs. You have to know how to adjust when it’s not working,” said Levy, at the time. “It did not produce the results expected and proved to be extremely expensive. We are not eliminating, we are reducing [o benefício]”, he added.

At the time, the PT was already reviewing its opinion regarding the exemption. When voting on Levy’s proposal, the party’s then leader in the Senate, Humberto Costa (PE), recognized the exhaustion of anti-cyclical PT policies, which is why he said an “adjustment” was necessary.

“This is the moment when we have to have companies contribute to this adjustment process. The workers have already given their share. Now is the time for businesspeople to make their contribution,” he argued.

Like Lula, Bolsonaro vetoed extending the benefit, but had his veto overturned

In 2017, the government of Michel Temer (MDB) defended the end of the payroll tax exemption policy, but, faced with resistance from businesspeople, proposed to Congress to limit the benefit to just three sectors. In Congress, however, parliamentarians modified the Executive’s project, signed by the then Minister of Finance, Henrique Meirelles, in order to set the branches of economic activity covered at 28.

When sanctioning the text, the then president vetoed the maintenance of 11 of them, consolidating the current list of 17 benefited segments, which would have a discount on social security contributions until December 2020.

Then, under the government of Jair Bolsonaro (PL), with Paulo Guedes in charge of the Ministry of Economy, the benefit was extended twice. In 2020, Congress extended the deadline until the end of 2021. As would happen under the Lula government, the measure was vetoed by the then president, but the veto was overturned by deputies and senators.

The following year, giving in to pressure from businesspeople, Guedes agreed to renew the exemption for another two years, setting the deadline until December 31, 2023, now extended for another four years.