The risk of layoffs with the end of the exemption does not worry the government

The possibility of layoffs with the return of gradual collection of taxes on salaries in the sectors that employ the most in the country is not worrying the Luiz Inácio Lula da Silva government in an election year, according to analysts interviewed by People’s Gazette.

With Provisional Measure 1,202, issued at the end of the legislative year, the government is trying to put an end to payroll tax relief in 17 sectors responsible for more than 9 million jobs, or almost a third of the jobs with a formal contract in the country, in force. since 2011.

If the MP is not revised – or returned, as opposition parliamentarians intend – in practice, it will increase the social security costs of companies in these sectors, which claim that there will be job cuts. The president of the Senate, Rodrigo Pacheco (PSD-MG), said that he intends to listen to the Minister of Finance, Fernando Haddad, before making any decision.

There are no precise estimates, but union centers are talking about cuts of up to 1 million jobs, in addition to impacts on exports, especially in the footwear sector.

According to Eduardo José Grin, political scientist and researcher at the São Paulo School of Economics at Fundação Getúlio Vargas (EESP-FGV), the issue of tax exemption and its consequences should not impact the electoral strategy of the government or that of parliamentarians from the Workers’ Party.

Even though we need to guarantee a base of support in municipal elections, the premise is that it is local issues that weigh more heavily in minority elections. “It’s difficult for the average voter to understand this issue. The word itself, re-encumbrance, exemption, who understands that, right? So, in the end, this won’t have much of an effect on the election, it won’t mean a loss of votes for mayor and candidates supported by the PT”, he states.

Another point that contributes to the government’s political calculations is the lack of consensus on the impacts on exempt sectors. In the researcher’s assessment, there is no evidence about the creation of jobs due to benefits to chosen sectors, a point that constitutes a recurring criticism of the tax exemption policy.

Finance Minister Fernando Haddad cites a survey by the Institute for Applied Economic Research (Ipea) that shows that, from 2012 to 2022, employment in exempt sectors fell by 13%, while in private companies in other sectors, they increased by 6.3% in same period.

Among economists, however, Ipea’s numbers are questioned and there are disagreements about the effects of increased taxation. “Most likely, the sectors will feel the impacts and there will be some impact on the generation of jobs with the re-encumbrance”, assesses Daniel Duque, researcher in the area of ​​applied economics at the Brazilian Institute of Economics of the Getúlio Vargas Foundation (FGV Ibre).

Macroeconomic scenario increases concerns about the job market

Concern about employment intensifies due to the prospect of a drop in economic growth, expected for this year. After three consecutive years with GDP expansion close to or greater than 3%, the average expectations for growth in 2024 are around 1.5%.

In addition to the high Selic Rate, currently at 11.75% per year, the economy is expected to suffer from the slowdown in global activity and the maintenance of the high interest rate policy in the main economies, combined with the lower rate of fiscal stimulus, despite the increase in spending. public by the current government.

In this scenario, financial market projections estimate that unemployment, which closed at 7.6% in 2023, will rise to between 8% and 8.5% by the end of this year.

For the executive director of the Free Market Parliamentary Front (FPML), Rodrigo Marinho, with the MP, the government is trying to solve its fiscal problem without thinking about the consequences and the social aspect. “If more burdens are passed on to companies, there will be unemployment, which is contradictory for a party that claims to be a defender of employment and workers,” he says.

Representative Evair de Melo (PP-ES) says that the PT’s concern in an election year is not with jobs, but with revenue. “Haddad, who collects, collects and has money on hand to do their kindness to buy the voters”, he states.

Fiscal issue is at the center of the debate

The reinstatement of companies’ contributions is part of the Finance Minister’s project to increase revenue to allow the government to maintain, or postpone as much as possible, the revision of the fiscal target, to bring the primary deficit to zero this year, as determined by the fiscal framework. For this, R$168 billion in extra revenue is needed. The market has already estimated that the target will be revised in March, in the first annual public accounts report, and projects a deficit of up to 1% of GDP this year.

According to the Ministry of Finance, the estimated cost of the exemption for this year, which was not included in the Budget, would be at least R$18.4 billion. There would be R$9.4 billion referring to the tax waiver for companies in the 17 sectors and R$9 billion due to the reduction in the social security rate from 20% to 8% on the salary of civil servants in municipalities with up to 156,216 inhabitants.

With the MP, scheduled to come into effect from April, the government estimates that it will collect R$6 billion this year in social security contributions. Another R$20 billion will come to the Treasury’s coffers with the limitation of offsetting tax credits obtained by companies through a court decision, embedded in the MP. This point is questioned by tax experts who claim that the measure cannot be retroactive to harm taxpayers who have amounts to receive from the government. Some even define the initiative as confiscation, compulsory loan or default.

Furthermore, the Treasury intends to save another R$6 billion this year with the extinction by 2025, by the MP, of tax benefits granted to event promotion companies through Perse (Emergency Program for the Resumption of the Events Sector), created to alleviate sector losses during the Covid-19 pandemic.

MP foresees gradual burden on selected activities

Implemented during the second government of Luiz Inácio Lula da Silva, the exemption would expire at the end of this year, but was maintained by Congress. Given the interests of revenue, President Lula vetoed the project, but the veto was overturned by a large majority of both legislative houses.

The MP, scheduled to come into force from the 1st. April, was announced on December 28 by Minister Haddad, establishing the gradual return of the employer contribution to salaries, in a phased manner, until 2027.

Instead of sectors, the government defined 42 economic activities, divided into two groups, which will have the CPP reduced by 50% or 25% in the first year. Under the current exemption rule, companies can replace the employer’s social security contribution (CPP), of 20% on employees’ first minimum wage, with rates of 1% to 4.5% on gross revenue.

A People’s Gazetteas a communications company, is among those benefiting from the extension of the payroll tax exemption.

Parliamentary Fronts demand return of MP

Since its announcement, the MP has suffered a barrage of criticism from entities in the productive sectors and parliamentary fronts, who alleged disrespect for Congress’s decisions and ask for the MP’s return by the president of the Senate.

In addition to harming the sectors with the reestablishment of the charge, the allegation is that the text did not help to cool criticism about tax distortions, by not explaining the criteria for choosing sectors and activities to benefit.

For Eduardo Grin, the government intended, with the MP, to open negotiations with parliament and find an intermediate solution that is not harmful to the government’s fiscal adjustment and, in the same way, corrects distortions. “So, possibly, a third possibility will emerge from there,” he says.

Marinho, from FPLM, argues that, instead of electing sectors, the government extends the exemption to everyone. “The government should try to resolve its accounts by doing what every indebted family does, which is cutting expenses, and not burdening the productive sector even more”, he says,

Under pressure, Rodrigo Pacheco met on Tuesday (9) with ten party leaders, most of them opposition, and, separately, with government leaders to try an alternative to the text.

Minister Haddad had threatened to take the issue to court if the MP was returned. Pacheco claimed that this is a matter that has already been discussed several times by the Senate since the implementation of the measure, and that it would not be justified to allege unconstitutionality and refer the case to the Federal Supreme Court (STF). But it has not yet decided whether to return the text in whole or in part.

At Lula’s request, Pacheco stated that he will only decide the MP’s fate after a conversation with Minister Haddad. As stated by “O Estado de S. Paulo”, the idea is to bring the decision forward to the recess period, as work in the Legislature will only resume on February 2nd.

Party leaders defend full devolution, claiming that negotiation with the Treasury sets a precedent for legislative vetoes to be questioned. The idea is to discuss specific issues with the economic team through a bill.