Lula evaluates exemption from the IR this year for those who receive up to 2 minimum wages

The government of Luiz Inácio Lula da Silva (PT) is considering exempting workers who earn up to two minimum wages from paying IRPF (Income Tax for Individuals) in 2023, according to members of the president’s team heard by the Sheet.

Today, the exemption range includes remuneration of up to R$ 1,903.98 per month. With the change, those earning up to R$ 2,640 would be exempt from the tax – if a new increase in the minimum wage to R$ 1,320 is confirmed as of May 1st.

At least two forms of exemption are under analysis by the Ministry of Finance. One of them is the simple correction of the table, expanding the exemption range to the amount targeted by the government.

This route, however, has a higher cost, since the measure would reach all workers, regardless of remuneration. As the tax is levied on each taxpayer’s income range, those who earn more than two minimum wages would also have some relief in their pockets.

The second option is more complex, but reduces resource foregone. According to interlocutors, it is possible to focus the exemption on workers who effectively earn up to two minimum wages, maintaining the current table.

This would be done in the adjustment statement, presented annually by taxpayers to the Federal Revenue Service. In this way, the worker would have deducted the IR at source every month, as currently occurs, but would receive a refund of all the tax paid after the declaration, made in the following year.

As the statement brings detailed information on the remuneration of each contributor, it would be possible to filter only those who earn up to two minimum wages to be contemplated with the benefit. Those who receive above this level would continue to pay income tax according to the current table.

In addition to saving resources, this route has the advantage of not affecting the spending ceiling, a fiscal rule that limits the growth of expenses and is still in effect. IRPF refunds do not fall within the spending limit, contrary to what would happen with some type of income transfer along the lines of Bolsa Família.

The second option would also be more progressive, concentrating the benefit on the lowest income strata.

The topic was one of the subjects discussed by Lula in a meeting with ministers Fernando Haddad (Finance), Luiz Marinho (Labour) and Rui Costa (Casa Civil) at the Planalto Palace last Thursday (2). According to interlocutors, the hammer has not yet been decided on which model will be chosen, but the idea is to prepare the announcement for after Carnival or in early March.

A wing of the government even defended a more modest measure, with the exemption corrected only to benefit workers who receive up to 1.5 minimum wages per month – which can be equivalent to R$ 1,980 as of May.

Politically, however, the impact of this adjustment is considered too timid to meet the electoral base and the president’s platform.

The PT member promised, during the campaign, to exempt workers earning up to R$5,000 a month from income tax. After the beginning of the government, the promise became a headache and began to suffer resistance from the Ministry of Finance.

In January, the president himself admitted that he was “fighting” with the party’s economists to guarantee exemption for those earning up to R$5,000. “My companions know that I have a fight with PT economists. You know that people say ‘Lula, if we exempt up to R$ 5,000, that’s 60% of the country’s collection, from people who earn up to R$ 6,000’. Well, then let’s change the logic. Decrease for the poor and increase for the rich”, said the petista.

As shown to Sheeta correction of this magnitude could generate a waiver of more than BRL 100 billion per year, at a time when Haddad is seeking to gain market confidence with a package to reduce the gap in public accounts.

The Budget today foresees a deficit of R$ 231.5 billion, which could significantly increase the country’s debt. Measures announced by the Minister of Finance may mitigate the gap, but even so the accounts should close in the red this year.

This scenario has placed Haddad in a more defensive position in the discussion of measures with fiscal impact, as opposed to ministers of final areas, such as Labor, who seek to implement measures with a positive political impact for the president in the face of his electoral base.

The Minister of Finance tried to contain the pressure in the discussion of the IRPF, saying that the measure needed to respect the principle of precedence, which requires annual advance in the implementation of increases in the Income Tax.

By Haddad’s logic, the benefit could only be made in 2024. However, the legal requirement does not apply to tax cuts, that is, the correction of the table can be made at any time and take effect immediately.

The IRPF table has not been readjusted since 2015. At the time, the minimum wage was BRL 788 per month – that is, the exemption served workers with remuneration of almost 2.5 minimum wages per month. According to the Sindifisco (Union of Federal Revenue Tax Auditors), the gap has reached 148% since 1996.

In recent weeks, Lula has shown signs that he intends to accelerate the search for measures aimed at the working class, even if they may represent a reduction in revenue or an increase in expenses. Solutions include adjusting the minimum wage and, now, IRPF exemption for the group that earns up to two floors.

According to assistants, the president gave more strength to these discussions after the Central Bank signaled that the basic interest rate could remain close to the current level (13.75% per year) until the end of 2023 —which is seen by PT members as a barrier to the recovery of employment and income.