PT governments increased benefits that Haddad now wants to cut – 03/30/2023 – Market

Brazil fails to raise more than R$ 350 billion a year with the granting of tax benefits to companies and sectors, in addition to credit incentives.

In the presentation of the new fiscal rule, Minister Fernando Haddad (Finance) made it clear that the government will seek to reduce them in order to “put the poor in the Budget”, as President Lula (PT) usually says.

Ironically, these tax, financial and credit benefits doubled during the Lula and Dilma Rousseff governments (2003-2016); and currently amount to around 3.5% of GDP. Although the Jair Bolsonaro government (2019-2022) has promised to reduce them, there has been no significant change.

The World Bank’s analysis of incentive policies in Brazil, Australia, Canada, South Korea, the Netherlands, and Mexico concluded that only the Brazilian case resulted in a combination of increased tax expenditures and falling revenues—suggesting that they did not accelerate growth.

Tax benefits in Brazil represent almost a quarter of the revenue managed by the Federal Revenue Service and, from a regional point of view, are also sources of inequalities.

A study by the Ministry of Economy (in the Paulo Guedes administration) showed that poorer states such as Maranhão, Piauí, Acre, Alagoas and Pará received less than a third of the national average of tax benefits per capita in 2018.

On the other hand, Amazonas (because of the Manaus Free Trade Zone), Santa Catarina and São Paulo benefited more from tax waivers than they contributed, proportionally, to GDP growth.

According to an evaluation report by the TCU (Tribunal de Contas da União), “tax benefits, in general, represent distortions to the free market and result, indirectly, in a greater tax burden for sectors not benefited”.

“In a context of restriction [orçamentária]as faced by the Union, the values ​​associated with these benefits must be considered with greater attention, due to the impact on public accounts”, says the TCU.

For economist Alexandre Manoel, from the Institute of Applied Economic Research, although a possible cut in tax benefits could result in an increase in the tax burden, this would be positive, as there would no longer be privileged treatment for some sectors.

Manoel suspects that much of the decrease in the government’s capacity in recent years to produce primary surpluses (savings to reduce the public debt) is related to the increase in tax benefits, which reduced federal revenue.

The largest share of tax benefits is directed to Simples (around 25%), and Haddad guaranteed that this tax simplification mechanism will not be changed.

In the past, several attempts to reduce tax incentives have been followed by strong lobbying by beneficiaries. Messing with these groups will not be an easy political task for the government in Congress.