Reform should consider tax burden seen before Bolsonaro’s exemptions, says secretary – 01/27/2023 – Market

A neutral tax reform should consider the level of federal government revenues before the exemptions made in the final stretch of the Jair Bolsonaro (PL) government, said this Friday (27) the Secretary of the National Treasury, Rogério Ceron.

According to him, a net collection below 18% of the GDP (Gross Domestic Product) is “unsustainable”, and the tax reform must observe this in the discussions of the so-called neutrality of the tax burden.

The 2023 Budget was approved with a net revenue of 17% of GDP. The Minister of Finance, Fernando Haddad (PT), proposed reversing some exemptions and other measures to raise government revenue permanently by around 1% of GDP.

The secretary’s statements this Friday indicate that this effort should be maintained within the framework of the reform.

“The issue of neutrality, to be clear, it is always neutral in relation to something. It is neutral in relation to a revenue level that will be specified. And then we have to look a little at 2022, or even 2019, that was a year that still didn’t have so much atypicality”, said Ceron.

“This is being discussed, what is the reference [de neutralidade] that will be used”, he added.

In 2019, net government revenue stood at 18.2% of GDP. In 2022, this level was 18.9% of GDP.

Haddad has been promising a neutral tax reform, without raising the tax burden, which is seen with skepticism outside the government, given the size of the gap in the accounts to be covered by the new administration.

The economic team, in turn, claims that it is not a matter of increasing the tax burden, but rather of “maintaining” the situation observed before Bolsonaro’s exemptions from the IPI (Tax on Industrialized Products), fuel and other taxes.

Haddad’s team’s argument is that these waivers were made “without ballast”, that is, without a fiscal situation that would support the adoption of these measures.

“The neutrality involves a discussion of a level of revenues without exemption, which was done abruptly, without ballast, without compensation”, said Ceron.

“Various measures [no pacote anunciado no início de janeiro] put 2024 with a revenue level, which is not a revenue level below 18%, because it is unsustainable for the Brazilian State. It is a revenue level that has an equivalence in the pre-pandemic and in the 2022 fiscal year”, said the secretary.

According to him, the history shows that net revenue has fluctuated in recent years between 18% and 19% of GDP. “My technical opinion is that the Brazilian state needs this revenue level. It may be a little lower, it will vary over time, this is natural, but it has to be a long-term goal that guarantees space in the budget to meet public policies and increase investments with sustainability.”

Ceron also stated that the neutrality of the Brazilian tax burden could come both from the reform of indirect taxes, the first to be prioritized by the current government, and from taxation on income. “That is a discussion that will be put on,” he said.