Haddad: selective tax will relieve health and environment – 07/13/2023 – Market

Finance Minister Fernando Haddad said this Thursday that the selective tax provided for in the Tax Reform proposal will relieve segments of the economy that respect the health of the population and the environment.

At first, the excise tax was designed to charge products harmful to health ——such as cigarettes and alcoholic beverages and to nature conservation.

“In the Tax Reform there is the selective tax. How will it operate? We will look at health and the environment and we will relieve that which respects the ecological transition, both from the point of view of health and the environment”, said the minister in interview with journalist Kennedy Alencar, from RedeTV,

Haddad stated that the government’s green transition plan will have six axes and has already been presented to President Luiz Inácio Lula da Silva (PT).

The head of the Treasury also said that the VAT (Value Added Tax) rate targeted by the Tax Reform proposal may remain, over time, at less than 25%, amid discussions in Congress about what value will be defined.

“In time, I think it will reach equilibrium with the neutrality of the reform at a level of 25% downwards”, said Haddad. He argued that this will be possible with the reduction of tax incentives resulting from the reform, the decrease in tax evasion and the digitalization of the economy.

The minister did not say, however, what the rate should be in the initial phase of the reform. Members of the economic team have stated that the tax could exceed 25%, especially given the inclusion of exceptions in the text to benefit specific sectors.

Haddad said he wants a “leaner” tax reform, with fewer exceptions, amid pressure from some sectors of the economy and federal entities to change the text in the Senate. Government officials say they fear that raising exceptions could undermine the reform’s positive fiscal effect, as well as its hoped-for boost to economic growth, as well as calling for the higher overall tax rate.

In the version of the reform approved by the Chamber of Deputies last week, five taxes were replaced by a non-cumulative dual VAT, with a zero rate forecast for products in the national basic basket and lower charges for favored sectors. The text will still be analyzed by the Senate.

The rate for favored regimes will correspond to 40% of the amount charged for products in general, but the VAT rate has not yet been agreed — the idea is that it will be fixed later in a complementary law.

Regarding the second stage of the Tax Reform, which will restructure taxation on income, and is still being prepared by the government, Haddad said that the focus will be on “charging those who do not pay” and “correcting distortions”.

He cited as examples changes in Income Tax charges on offshore companies and closed-end investment funds. Haddad was asked about raising the IR exemption for individuals with a monthly income of up to R$5,000, as promised by Lula, but he did not respond.

Interest rate

With regard to interest rates, the minister said he considered that there was no longer any discussion of when the cuts made by the Central Bank would be made, but rather what their magnitude would be, stating that there was room for a reduction in the Selic rate of more than 0.25 percentage points.

The basic interest rate is currently at 13.75% and the BC indicated in the minutes of its last meeting that it should reduce it as early as August, provided that until then the scenario of cooling inflation is maintained.

“It is everyone’s expectation at this point, 100% of analysts expect a cut… Now the problem is no longer when (the cut will be made), but how much”, said the minister.

In the interview, Haddad argued that the real interest rate tripled in Brazil in one year, given the maintenance of the Selic high while inflation has been cooling down. He pointed out that the government is paying 10% real interest on its bonds and that individuals pay a 30% real rate to buy appliances, which would be unsustainable.

“We expect some technical sensitivity to the numbers on the part of the monetary authority so that we can return to a normal cycle”, he said.

In the future interest rate market, investors are still predominantly betting on a 0.25 percentage point cut in the Selic rate at the next Copom meeting, on August 1st and 2nd, even though the prospect of a 0.50 pp reduction has gained strength in the last days.

In the interview, the minister said that the two appointed by the government to the BC’s board of directors, Gabriel Galípolo and Ailton Aquino, will not “compose a bench” in the monetary authority, but will bring new technical subsidies to the Monetary Policy Committee.

Haddad also stated that he has not yet been approached by Lula to discuss the possibility of creating discounts for white goods, after the president defended government action in that direction this week. He pondered, however, that he will have a meeting with Lula on Friday and the topic should be on the agenda.

“Tomorrow I have a dispatch with him, it should be a topic”, he said. “I always have to find spaces (in the Budget).”