Taxation of the richest gains strength with promises, fiscal tightening and popular support

A tax reform that raises taxation on the richest has gained more chances of being implemented from next year amid promises made by presidential candidates Luiz Inácio Lula da Silva (PT) and Jair Bolsonaro (PL) and popular support for a gender measure.

The tax plans are made at a time when experts already see the need for the country to seek more revenue from 2023 to offset, at least in part, the expansion of expenses resulting from election promises.

The PT campaign is more explicit on the subject, going so far as to say in the government plan delivered to the Electoral Justice that it will seek a tax reform so “the poor pay less and the rich, more”. Campaign members also indicate increasing taxation on income and decreasing on consumption – which burdens the lower classes proportionally more.

They also intend to recreate the collection of dividends (company profits distributed to shareholders), an exempt instrument that for more than 25 years has benefited the income of both company owners or partners and those who invest in the financial market.

In the case of Lula, members of the campaign tell the Sheet that the tax reform with the taxation of dividends is among the first points to be addressed in the event of victory in the elections – in addition to the arrangement of expenses in the 2023 Budget and the definition of the substitute rule of the spending ceiling.

Bolsonaro’s program, on the other hand, does not speak clearly about raising the taxation of the richest, although it defends the proposal sent by the government itself to Congress in 2021 that seeks to change income tax rules and recreate the taxation of dividends. President and Minister Paulo Guedes (Economy) even mentioned the charge as a way to support the payment of R$ 600 of Auxílio Brasil in 2023.

The search for more collection through an increase in the tax burden would be a barrier to the resistance of the population, but research indicates that there would be more acceptance if the greater collection were actually restricted to the upper classes.

An unprecedented survey commissioned by Febrafite (National Association of State Tax Inspector Associations) shows that the majority (67%) of the 2,000 respondents argue that the government should be concerned with reducing the gap between rich and poor, with the largest portion (41 %) is in favor or fully in favor of much higher taxes on the income and inheritance of the richest.

Furthermore, 57% think that high-wage earners should pay a greater or a much greater proportion of taxes.

“When people talk about raising taxes, there is a view that everyone will pay more – then there is a refusal. tax, then people accept more”, says Rodrigo Spada, president of Febrafite.

Other surveys corroborate the conclusions, such as a survey by Datafolha in partnership with the organization Oxfam released last month, which concludes that 85% advocate raising taxes on the upper classes to guarantee the poorest basic public services, such as education.

Despite the two candidates promising to tax dividends in the face of fiscal expansion next year, the gain from the measure does not support all the candidates’ promises.

The collection of dividends in the format originally presented by the Bolsonaro government would yield R$ 58.1 billion in 2024 (according to data presented by the Federal Revenue at the time of sending the proposal, which ended up dehydrated). The amount is similar to the amount demanded to raise Auxílio Brasil to R$ 600 next year (R$ 52.5 billion per year, according to the Ministry of Economy).

In addition, other promises made by both campaigns exacerbate the gap foreseen for 2023 – one of them within the tax system itself, with the increase in the Individual Income Tax exemption range from the current BRL 1,903.98 to BRL 5,000 . That alone would require another R$20 billion, at least —according to initial calculations by experts. There are still other pressures on the Budget, such as the promised recomposition of funds for social programs such as Farmácia Popular.

Bráulio Borges, researcher at FGV Ibre (Brazilian Institute of Economics of Fundação Getulio Vargas) and senior economist at LCA, says that the search for new revenues will be necessary to reduce the country’s net debt (which corresponds to 58% of GDP today) .

“There is no longer a way to make a fiscal adjustment only on the expense side. We will have to adopt a new strategy of fiscal consolidation and, in order to achieve this surplus, it will necessarily have to involve some increase in the tax burden”, says Borges. “One way out is to increase taxation at the top,” he says.

In addition to the taxation of dividends, Borges cites among the possibilities to increase the collection of the richest the taxation on patrimony – and specifically mentions the federal ITR (Imposto Territorial Rural). On the other hand, a tax usually mentioned in discussions – on large fortunes – would not generate the desired effect, according to Borges, since much of the wealth targeted by the measure is hidden in tax havens, bypassing the IRS.

Juliana Damasceno, senior economist at Tendências Consultoria, says that a challenging scenario for public accounts is already in place for the coming year – including due to the level of interest, which increases the cost of public debt.

“We will enter and exit the year with an interest rate in the double digits and with two challenges, a primary [conta sem juros] and a financial [com juros]. So that there is no debt explosion, naturally we need to consider that we have to gain a load”, he says.

Still, she says taxing dividends won’t be that simple. “There will be a greater need than we are thinking [de tributação sobre esses instrumentos] and this will be a challenge, mainly because it affects very well organized sectors. So maybe not everything [da busca por receitas] come from dividends”, says the economist.

“If he [eleito] does not want to go into the red, it will have to tax much more than previously thought in terms of dividends, or introduce new taxes on the scene, or increase tax rates”, he says.

TAX REFORM

• Lula promised to raise income tax exemption for those who earn up to R$ 5,000

• Proposes reform that simplifies taxes and makes the poor pay less and the rich more
• Promises to fight tax evasion and simplification
• Campaign members also signal increasing taxation on income and decreasing on consumption – which proportionally burdens the lower classes more.

• They also intend to recreate the collection of dividends (company profits distributed to shareholders), an exempt instrument that for more than 25 years has benefited the income of both company owners or partners and those who invest in the financial market.