IR update promised by Bolsonaro is still not a consensus in the government

Although President Jair Bolsonaro (PL) said this Tuesday (2) that an update of the Income Tax (IR) table is guaranteed next year, the measure is still not in fact aligned within the government.

The loss of revenue generated by the updating of the Income Tax continues to be seen as an obstacle to being viable and, therefore, the idea that changes need compensation is defended in the Executive.

It is not yet defined what these counterparts would be, but some examples are cited. For example, the limitation of medical expenses that can be deducted from the Income Tax – which could generate a fiscal space of R$ 20 billion.

Promise of the 2018 campaign, the correction was not implemented in Bolsonaro’s administration – despite having been sent in June 2021 to Congress within the government’s bill that amended these and other tax rules.

The text sent by the government went through the Chamber, but stopped in the Senate in the face of resistance to key points of the project – mainly the collection of dividends, which aroused reactions from the business community). Faced with the obstacle, the government left the update aside, concluding that, alone, it would reduce the collection without the due counterparts.​

Now, Bolsonaro again promises the correction for 2023. “He’s already talked to Paulo Guedes [ministro da Economia], there will be an update of the IR table for the next year. It’s already guaranteed, I don’t know the percentage. It is becoming an income reducer, not a table”, said the president.

In the discussions, it is mentioned that the exemption for the lower classes needs to be carried out with reductions in benefits granted to the higher classes.

This assumption is even used in the debate on how the definitive increase to R$600 in Auxílio Brasil should be financed starting next year. The government sees the taxation of dividends as crucial, which would tax the richest and could be a source of funds for the highest payments.

The idea was already tried last year, when the government planned to use R$ 20 billion from the IR reform to fund the launch of Auxílio Brasil.

Despite meeting the requirements of the Fiscal Responsibility Law (LRF), which requires compensation for permanent expenses, the taxation of dividends would not save the government from another headache when definitively raising Auxílio Brasil: the potential non-compliance with the spending ceiling (which impedes real growth in federal spending).

In order to solve this problem, the need to cut other expenses is mentioned and the proposal for untying, unindexing and releasing the Budget – a flag of the Ministry of Economy not fully implemented, is mentioned.

The government maintains the idea of ​​sending the 2023 Budget proposal to Congress this month without the forecast of R$ 600 for Auxílio Brasil. The idea is to leave the budget discussions (and the increase in the social program) for the first year of a possible new term.

The IR collection table has been the same for seven years, when the minimum wage was R$788. Brazilians who receive R$ 1,941 (1.5 minimum wage) will have to pay IR starting next year, if the table is not corrected.

The lack of correction of the IR table combined with the increase in inflation in Brazil has generated a historical increase in taxation on the population with less purchasing power, according to a study by Sindifisco Nacional (which represents the tax auditors of the Federal Revenue Service).

According to a simulation made by the entity, a person who receives BRL 5,000, after deductions, currently pays BRL 505.64 in IR. If the entire table lag were corrected, this value would drop to BRL 24.73 — a difference of almost 2,000%.

The survey carried out by the Internal Revenue Service auditors shows that the discrepancy in the IR table reached 147.37%, considering the period from 1996 – the year in which annual readjustments ceased – to June of this year. Before, in the years of uncontrolled inflation, the table was automatically readjusted by an index, the Ufir (Reference Fiscal Unit).

It was in the second year of the Fernando Henrique Cardoso (PSDB) government that the annual update was stopped. From the Tucana administration, the correction started to be made intermittently, as in 2002 and, in the PT governments, between 2005 and 2015 — the last year in which there was an adjustment.

During Bolsonaro’s government, the lag is accumulated at 26.6% until June, according to data from Sindifisco. The value is above any other president since the implementation of the Real Plan. According to the entity, no other head of the Executive carried out the full correction of the IR table.