PT wants to leave the discussion on the Income Tax table to 2023

A campaign promise by President-elect Luiz Inácio Lula da Silva (PT), the correction of the Income Tax table should only be discussed next year, defend party members.

The vote on the project that expands the income tax exemption range later this year was signaled by the president of the Chamber, Arthur Lira (PP-AL), after Lula’s victory over President Jair Bolsonaro (PL). During the electoral campaign, PT promised to exempt those who earn up to R$ 5,000 from paying income tax.

After the second round, Lula’s team began to negotiate with Congress the presentation of a PEC (Proposed Amendment to the Constitution) to authorize extra expenses above the spending ceiling in 2023, including Auxílio Brasil [que deve ser rebatizado de Bolsa Família] of R$ 600 and the real increase [acima da inflação] of the minimum wage.

The estimate is that this PEC will cost at least R$100 billion – some say R$200 billion.

The proposal to expand the Income Tax ranges, however, is not being discussed within the scope of this PEC.

As it entails tax waivers, the project must be included in the 2023 Budget, pending in the Legislature. The estimate is that the cost of the measure is R$ 22 billion – higher than the proposal to include all children up to six years of age in the extra social benefit of R$ 150, which would require R$ 16 billion.

Faced with the fiscal tightening, PT parliamentarians defend that the discussion be held only next year. This Friday (4), during the PT’s visit to the CCBB (Centro Cultural Banco do Brasil), where the transition will take place, Senator Paulo Rocha (PT-PA) said that the correction of the Income Tax table is “something else that will be left for later”.

Postponing to 2023 would avoid a kind of inconsistency. This is because, on the one hand, the transition PEC is being discussed under the argument that there is no space in the Budget to contemplate social spending. On the other hand, the elected government would be giving up a relevant revenue.

In addition, there is the assessment that there would be no reason to fulfill all campaign promises before the new government takes office. The PEC, therefore, would contemplate the main proposals, and the others would be accommodated in the Budget throughout the term.

“For us, the priority is any project that returns to taxing profits and dividends and that reduces the collection of Income Tax on the poorest”, says deputy Enio Verri (PT-PR), PT coordinator at the CMO (Mixed Commission of Budget).

“The Lula government starts on January 1st. It is not possible to have this type of debate in the Bolsonaro government. So, when the year starts, when we take office, we will start the debate on the Income Tax table, if possible a little broader. If not a big one, at least a small tax reform.”

A wing of the Chamber defends that the bill to expand the table should be voted on later this year. Author of the text that extends the IR exemption for those who earn up to R$ 5,200, deputy Danilo Forte (União Brasil-CE) says that the correction is an old demand of society.

“I understand that we have a great window to advance the project, since the theme was present as a priority in both campaigns”, he said.

“The Chamber has shown great determination to put the tax reduction agenda, as proved in the approval of the ICMS ceiling. We put ourselves at the disposal of the elected government to address this issue and I believe it is possible to enter next year with this issue equalized, already with the measure in force.”

Forte also argues that it is unreasonable to maintain “an unfair taxation on the population, especially the most needy, for another year, if we have the opportunity to address this now.” For him, the discussion could be made within the scope of the transition PEC.

Government leader in the Chamber, deputy Ricardo Barros (PP-PR) says that the intention is to negotiate with the opposition leader, Wolney Queiroz (PDT-PE), issues that have an impact on Lula’s administration – which would include the Tax of Income.

The income tax collection table has been the same for seven years, when the minimum wage was R$788. If there is no adjustment, Brazilians who earn 1.5 minimum wage, currently exempt, will have to pay tax next year.

According to a simulation carried out in July by Sindifisco Nacional, which represents the tax auditors of the Federal Revenue, a person who receives R$ 5,000, after deductions, currently pays R$ 505.64 in IR. If the entire table lag were corrected, this value would drop to R$ 24.73.

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 inconstantly, as in 2002 and, in the PT governments, between 2005 and 2015 — the last year in which there was readjustment.

For Débora Freire, economics professor at Cedeplar at UFMG (Center for Development and Regional Planning at the Federal University of Minas Gerais), a complete reform would be the most appropriate.

“Under ideal conditions, we could have effective taxation of profits and dividends, using progressive rates, so that we could increase collection via Income Tax, correct distortions, such as the tendency to pejotization, at the same time, give a good exemption like the one that has been proposed,” he said.

But the expert highlights the high political cost of a broader project in the transition of government. “There’s a chance something bad happens and it’s a renovation. So it’s better to leave the complete renovation until next year,” she said. “It is not possible to pass a correction that is very expressive because we will not be able to compensate for it now, but I believe there is room to pass a more parsimonious correction”.

Freire points out that revenue is lost every time the table is updated, so governments end up postponing this correction to avoid loss of revenue.

“The big problem is that we need to raise funds to pay for public goods and services, such as health and education, and to carry out intergovernmental transfers to states and municipalities,” he said.

For the economist, the correction needs to be “very heavy” so as not to compromise the supply of public services and it is necessary to find alternative sources of compensation,

The expert says that, from an economic point of view, a more gradual correction would avoid a significant loss of revenue all at once and would open space for the new government and allies to tailor a package for a fairer income tax reform.