Tax bomb in Congress could exceed R$ 230 billion

The appetite of the political wing of the government for measures of popular appeal in an election year will be a challenge for the team of Minister Paulo Guedes (Economy), which starts 2022 under the pressure of a fiscal bomb that could exceed R$ 230 billion.

The first big test is the PEC (Proposed Amendment to the Constitution) of Fuels, which had one of its versions called kamikaze by the economic team, due to the potential impact of more than R$ 100 billion in exchange for an uncertain reduction of cents in the price at pumps and electricity bill.

Guedes’ team is still negotiating an exemption located only on diesel, at a cost of R$ 17 billion. But the pressure remains to advance in parallel with other related proposals, such as the institution of subsidies to contain urban bus fares.

Furthermore, the collection of bombs to be defused at the National Congress this year is not limited to the fuel issue. With the resumption of legislative work, parliamentarians returned to work with projects that alleviate debts of large companies, expand tax exemptions or increase government spending.

A greater fiscal expansion, through expenditures or revenue waivers, is considered a natural trend in the last year of a government and was also observed in previous administrations.

However, experts believe that the second place of President Jair Bolsonaro (PL) in the polls of voting intentions adds pressure for the Planalto Palace to be more conniving with the requests.

According to the latest Datafolha poll, Bolsonaro is behind former president Luiz Inácio Lula da Silva (PT) in the presidential race.

One of the most risky projects for the economic team is the one that authorizes a wide renegotiation of tax debts of medium and large companies.

The Refis text approved in the Senate focused the greatest benefits on companies that faced difficulties due to Covid-19. At the end of 2021, the Chamber of Deputies extended the program’s reach even to companies that profited most from the pandemic.

Government calculations point to a potential loss of BRL 92.1 billion in 2022 alone, if the program is approved in the format provided by the Chamber. The text provides for discounts of up to 90% on interest and fines and 100% on charges, in addition to the possibility of deducting large volumes of tax loss credit or negative CSLL (Social Contribution on Net Income) calculation basis.

The size of the invoice prompted the economic team to act. At the end of 2021, government officials managed to withdraw the project from the agenda.

Under pressure from big companies and congressmen, the proposal should gain strength again. There are ongoing negotiations for the text to be on the agenda for the next sessions.

The rapporteur, deputy André Fufuca (PP-MA), recently sworn in as leader of the party in the Chamber, told leaf who will talk to leaders about the project next week. He avoided answering whether he will make changes to the text.

In the Senate, one of the pressures on the government’s radar is the correction of the IRPF (Individual Income Tax) table. Senator Ângelo Coronel (PSD-BA), who was the rapporteur for the IR reform already approved in the Chamber, dismembered the topic from the table and presented a separate project.

The congressman’s proposal is to raise the exemption range to R$3,300 per month, which would cost around R$35 billion. Today, the exemption goes up to R$ 1,903.98.

“Since we are not going to meet the R$5,000 that the president trumpeted in the campaign, at least a compromise, correcting for inflation”, argues Coronel.

According to the congressman, Senate President Rodrigo Pacheco (PSD-MG) has already signaled to the college of leaders that he intends to schedule a week for voting on tax matters, with dates to be defined. Coronel’s attempt will be to include the project for the IRPF table on the agenda.

There is also a bill, reported by the leader of the MDB in the Senate, Eduardo Braga (AM), which seeks to institute a federal transfer to fund the gratuity of the elderly in urban buses.

A similar proposal was even included in the PEC kamikaze, which was signed by Senator Flávio Bolsonaro (PL-RJ), the president’s son. But the advance of the PEC is being fought by the economic team.

Last Wednesday (9), Pacheco decided to send the separate bill on the subsidy to buses directly to the plenary of the House, without going through any commission. The cost can reach R$ 5 billion.

The government itself has also given the green light to overturning a veto by Bolsonaro to exempt companies in the tourism sector and events from paying taxes for five years. The restoration of the benefit should generate a waiver of BRL 3.2 billion in 2022 alone.

The endorsement of the overthrow was publicly announced by Flávio Bolsonaro on his social networks. The appreciation of the veto may take place next Wednesday (16).

Another veto that should fall will allow Simples Nacional companies to renegotiate their debts, with an impact of around R$1.7 billion for the federal coffers.

Most of the investments target government revenues — a strategy to avoid bumping into the spending ceiling, a fiscal rule provided for in the Constitution and which limits expenditures, but does not discipline government revenues.

The economic team, however, sees the movements with great concern, as it needs to respect the fiscal target, which authorizes a deficit of up to R$ 170.5 billion this year. The government’s current forecast points to a deficit of R$ 79.3 billion, a projection that should worsen if there is a cut in taxes on diesel.

Guedes still wants to reduce the IPI (Tax on Industrialized Products), which also impacts revenue.

There is still pressure on the expenditure side. The Economy Minister’s team remains on alert for the risk that the granting of readjustments to police officers will end up triggering widespread pressure for increases in civil servants.

For researcher Bruno Carazza, a professor at Fundação Dom Cabral, the weakening of Guedes’ position and Bolsonaro’s second position in polls of voting intentions make the president more susceptible to pressure in an election year.

“In a year of trying for reelection, this has never happened, the president is not leading the polls. It creates extra incentive for him to [Bolsonaro] free up more money to try to make the economy grow, make voters happier”, analyzes the researcher.

According to Carazza, the possibility of Lula’s victory also tends to strengthen candidates from his coalition for positions in the Legislature, which may lead Bolsonaro’s current allies to seek more resources for their bases. “To stop betrayals, the government has given in to these pressures,” he says.

Political scientist Rafael Cortez, from consulting firm Tendências, believes that the government faces difficulties in generating a sense of confidence and well-being in voters, despite recent initiatives, such as the expansion of Auxílio Brasil — the successor to Bolsa Família, a brand of PT administrations.

“The source of this incapacity has to do with the lack of political coordination. It is as if there were two governments, with an economic team increasingly isolated in relation to the reelection project”, he says. For the specialist, there is also a lack of coordination between the Chamber and the Senate.

“Interestingly, this lack of coordination can help to avoid a greater evil”, says Cortez, citing the example of the PEC of Fuels, which lost strength, giving way to a project to exempt only diesel. “Basically, as we live a perverse governance, when an item is approved it adds risk, not removes it.”