Minister Paulo Guedes (Economy) started the government advocating cuts in subsidies and exemptions in the tax system, but he will hand over an even bigger bill to the next president-elect with this type of policy.
Also called tax expenditures by the Ministry of Economy, subsidies reduce public revenue through tax exceptions created to reduce costs to the consumer or producer. The account will pass the R$450 billion mark for the first time in 2023, a nominal advance of 49% since 2019 (first year of government).
Predicted by the Federal Revenue in the data that support next year’s Budget, the record in tax expenditures worsens the situation of public accounts at a time when the government calculates a deficit of R$ 63.7 billion for 2023, even with a series of expenses. still pending accommodation. Among the absent initiatives, the increase from R$ 400 to R$ 600 of the minimum payment of Auxílio Brasil.
Tax expenditures will reach 2023 with stronger growth than that observed in the federal collection itself – whose progress has been praised by the government. In 2019, exemptions represented 18.7% of total revenues; in 2023, the percentage rises to 20.2%.
The largest exemptions will be granted in 2023 to Simples Nacional (R$88.5 billion), to industries in the Manaus Free Trade Zone (R$55.3 billion) and to agribusiness (R$53.9 billion). Also on the list are non-taxable income from the Personal Income Tax (R$ 45.3 billion), in addition to subsidies to the automotive sector (R$ 10 billion) and vessels and aircraft (R$ 5.8 billion).
The increase is observed even after the promulgation of the Emergency Constitutional Amendment, in March 2021, which allowed the resumption of aid to the vulnerable population that year – and which determined the government to send a plan to reduce gradually incentives and tax benefits.
The government submitted the proposal, but left out a number of measures. Even so, she is completing one year in Congress this month – reflecting the lack of commitment from the political class to tamper with sectoral privileges and reduce what is one of the main expenses of the Union.
Mauro Rochlin, economics professor at FGV (Fundação Getulio Vargas), draws attention to the fact that next year tax expenditures will represent practically a quarter of budget expenditures (R$ 1.8 trillion in 2023). “It’s something very significant in terms of the final resource and even the expenses as a whole”, he says.
He cites as possible culprits for the scenario the government, for not having mobilized its parliamentary base for changes in the theme, and the resistance of Congress to change the benefits of certain groups. “Missing spending means messing with consolidated interests. So we rarely see this advance,” he says.
For him, it is necessary to make an assessment of tax expenditures and their benefits to society. “When we talk about the fiscal scenario, one of the measures must be to establish metrics to verify the impact of the policies adopted and to know the result of them. So it would be essential to know if they are worth it”, he says. “But our fiscal policy is very poorly evaluated,” he says.
Mauro Silva, president of Unafisco (National Association of Tax Auditors of the Federal Revenue), says that the list of tax expenditures privileges certain groups and prevents the adoption of policies that benefit the population in general – such as the correction of the Income Tax table.
“You are penalizing those companies that pay taxes for the privilege of a few, so this is a huge distortion in our tax system. This needs to be faced”, he says.
For him, the multiplication of these costs is also a reflection of the presence of parliamentarians who represent certain interest groups. “We have many entrepreneurs and representatives of agribusiness and other important sectors within Congress, which has a large representation of the richest legislating for their own cause and creating more and more privileges”, he says.
Economists for presidential candidates have proactively advocated cutting tax spending as a way to relieve pressure on public accounts. Nelson Marconi, from the campaign of Ciro Gomes (PDT), states that the goal is to reduce tax expenditures by 20%.
Elena Landau, from Simone Tebet’s campaign (MDB), says it is necessary to review tax expenditures as a whole, with an evaluation of each policy.
“This has to be done. Our proposal is to follow the OECD (Organization for Economic Cooperation and Development) countries, with a review of short, medium and long term expenses”, he says. “There has to be a fiscal impact analysis and an assessment of public policy on tax expenditures. Does a certain industry that needed an incentive 20 years ago need it today? Isn’t the economy changing?”, he asks.
The increase in tax expenditures goes against what Guedes advocated at the beginning of his term. In his inaugural speech, in January 2019, he defended that the political class take control of public accounts and suggested cutting subsidies.
“Is the political class mature enough to take the lead, to take command of the Union Budget, vote for more health and education? It may even be more than it is today, but where does it cut? a factory of inequalities? Didn’t we give R$ 300 billion in tax breaks?”, he said at the time.
Asked about the absence of a decrease in values, the Ministry of Economy has already reported on other occasions that the government’s focus in the middle of the term was to combat the effects of Covid-19 and defended the comparison of spending in relation to GDP. In this case, there is a drop in the ratio – but marginal, of 0.04 percentage point (from 4.33% in 2019 to 4.29% in 2023).
In recent days, the Ministry of Economy published the Budget of Subsidies of the Union, in which it claims to have created a subsidy monitoring committee to evaluate these expenditures. According to the folder, “the reduction of tax benefits is quite challenging”.
According to the ministry, it is necessary to consider relevant gaps that usually permeate the institution and the review of benefits, such as the absence of a managing body, indicators and monitoring and evaluation parameters -“which favors the crystallization of policies financed by this type of subsidy”. Sought, the Ministry of Economy preferred not to comment further.
Collaborated Renato Machado and Marianna Holanda
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