Haddad’s package aims at high revenues and includes a tiebreaker in favor of the Union in tax disputes

The package of economic measures to be announced by Finance Minister Fernando Haddad (PT) will focus efforts on recovering federal government revenue and includes resuming the tie-breaking vote in favor of the Union in tax disputes with taxpayers.

The announcement is scheduled for this Thursday (12) at the Planalto Palace and should be attended by President Luiz Inácio Lula da Silva (PT), in a sign of political support for the initiatives —many of them unpopular, as they mean in practice a increase in taxes.

Ministers Rui Costa (Casa Civil) and Simone Tebet (Planning and Budget) are also expected to make the announcement. Despite the coup acts that resulted in the depredation of the headquarters of the three Powers, the team decided to maintain the planned schedule to demonstrate that the government’s work continues.

The focus of the economic team is the reduction of a deficit of R$ 231.55 billion projected for this year, which was classified as “absurd” by Haddad in his inauguration speech. The market demands a firm signal to reduce this gap in order to keep the public debt at a sustainable level.

The package should include four MPs (provisional measures), two presidential decrees, an interministerial ordinance and a joint ordinance of the Federal Revenue Service and the PGFN (Attorney General of the National Treasury).

One of the MPs will seek to reinstate the so-called “quality vote” in the Carf (Administration Council for Tax Resources), an administrative court that judges tax disputes.

The casting vote assured the Revenue Service of maintaining the collection in the event of a tie in the judgment — something common in disputes involving large amounts, since the court is made up of representatives of the Tax Authorities and taxpayers.

Sensitive to group interests, Congress has made a series of attacks against the casting vote over the years and finally succeeded in 2020, during the Jair Bolsonaro (PL) government. That year, the tiebreaker in favor of the Revenue was extinguished, imposing billionaire defeats on the Union in new judgments.

During the discussions, the government even raised legal doubts about the possibility of resuming the casting vote, since the STF (Federal Supreme Court) was moving to manifest itself in favor of the legality of the change made in 2020 —the judgment was suspended in March 2022 by a view request.

Despite the risk, the measure ended up being included in the package to be announced by Haddad, who has been emphasizing the problems to be faced at CARF. The minister has drawn attention to the significant increase in the stock of lawsuits, which jumped from R$600 billion to R$1.2 trillion in four years.

In an interview with Sheetthe secretary of the National Treasury, Rogério Ceron, said that “having a solution for CARF is essential”.

In internal debates last week, Haddad’s team even discussed extraordinary revenue actions, such as an “incentive to reduce litigation at Carf”, whose potential was estimated at R$ 53.77 billion.

Another option is an “extraordinary incentive for spontaneous reporting”, estimated at R$ 33.77 billion.

The package of measures should also include the reversal of tax exemptions adopted by the previous government. One of them targets the cut in PIS/Cofins rates on financial income from large companies, whose impact would be close to R$ 4.4 billion.

Another measure that was in the previous discussions is the use of ICMS credits, a state tax, by companies. It is related to the STF ruling that removed ICMS from the PIS/Cofins calculation base on sales operations carried out by companies.

The problem is that the judgment did not consider the acquisition of inputs by companies, which continued to consider ICMS in the calculation base of federal taxes in these operations because this was more advantageous —they have a greater tax credit to be deducted later.

In practice, according to technicians, the distortion allows taxpayers to use a tax that has not been paid as a credit. Therefore, there is the possibility of correcting the problem via MP, restoring a collection of at least R$ 30 billion in taxes. This measure would have a more lasting impact on revenue than other measures considered extraordinary, centered on 2023.

There was also, in the preliminary discussions, an estimated impact of R$ 28.7 billion with the reinstatement of federal taxes on gasoline and ethanol as of March.

At the beginning of the year, Lula edited an MP extending the exemption on fuels, valid for 12 months for diesel and cooking gas and 60 days for other cases. Haddad had been justifying the measure as the time needed to pass the baton in charge of Petrobras —which will be presided over by Jean Paul Prates. The aim is to obtain a structured solution together with the company.

Haddad’s package must still bring measures to reduce expenses, such as reviewing contracts and programs — whose impact was estimated at R$ 15 billion in preliminary discussions.

In an interview with Sheet, Ceron stated that the agenda needed to involve both revenue gains and expenditure reductions, but argued that increased revenues did not mean an expansion of the tax burden. “It’s about discussing maintaining the tax burden that existed at the end of 2022,” he said at the time.

“The federal government’s net revenue should be around 18.7%, 18.8% of GDP in 2022. For 2023, tax waivers made last year drop 1.5 percentage points of GDP. Net revenue drops to 17.2% of GDP. This means more than R$ 100 billion waived without ballast. It is a great impact”, he said.