Lula gives a clear sign that inequality is not going to fall anytime soon – 05/25/2023 – Market

When a left-wing government gives up collecting taxes to benefit those who have up to R$ 120,000 to buy a car, it sends a clear signal that the horrible Brazilian inequality will not fall any time soon.

The new measure by the Lula government (PT) does not make sense in a country where the per capita household income of the poorest half of the population was limited to R$537 last year. In a simple account, a family of four people at that level would take more than two and a half years, without spending a penny on anything else, to buy a “popular” car for R$ 70 thousand.

Remembering that the income of BRL 537 per capita only reached this level because Brazil tripled the value of the Bolsa Família in relation to what it spent before the pandemic. This will cost R$ 175 billion annually, which should come from the same taxes that the government is now giving up in order to favor the richest layers.

Additionally, even with the new fiscal framework, Lula will have to increase collections by around R$150 billion to stabilize public accounts and debt. Without this, it is the same poorest 50% who will continue to suffer most from inflation and high interest rates, which contain activity and employment.

Contrary to the idea of ​​adjusting public accounts, Lula will forgo IPI and PIS/Cofins for the layer above the poorest. There may be good reasons.

Analysis of the election result suggests that the C class was crucial to Bolsonaro’s expressive vote in 2022, which he lost to Lula by just 2.1 million votes. A Datafolha poll on the eve of the second round indicated that 51% of voters with a family income between 2 and 5 minimum wages (class C, according to consultancy criteria) would vote for Bolsonaro (against 42% for Lula).

Crossing the election result by state, it appears that, with few exceptions, where the C class is larger, Bolsonaro had more votes. According to the consultancy Plano CDE, the C class is the most numerous in Brazil, with 95.6 million people. Class D/E adds another 70.5 million and A/B, 46.4 million.

With the Bolsa Família boosted, Lula is possibly already counting on increased support from the poorest, who helped him win. Now, the incentive for the “popular” car joins the promise to exempt from Income Tax those who earn up to R$ 5,000, the bulk of the C class.

On this road in search of greater support, the fight against inequality will have to wait.