By Bernardo Caram and Marcela Ayres
BRASÍLIA (Reuters) – The government plans to put the Income Tax (IR) reform to a vote shortly after the October elections, instituting the taxation of dividends as a source of financing to fund the continuity of the 600 reais of Auxílio Brasil from 2023, according to a source participating in the negotiations.
According to the official, who spoke on condition of anonymity, the plan aims to establish a permanent source of funding for this expense, while technicians are still looking for a solution on the expense side, as there is no margin in the spending ceiling.
Last Sunday, President Jair Bolsonaro promised to keep the amount of the social benefit at 600 reais in 2023 if he is elected – by the approved constitutional amendment, this amount is guaranteed only until December and the benefit would return to 400 reais next year.
The economic team estimates that making the 600 reais benefit permanent would require an additional expenditure of up to 60 billion reais in 2023 and considers the adoption of the measure a “considerable challenge” given the tightening of federal accounts.
The Chamber of Deputies approved a reform of the IR in September 2021, with a 15% tax on the distribution of dividends, currently exempt in Brazil. The text is locked in the Senate.
The government wants to use the political force of an eventual re-election of Bolsonaro to approve the measure later this year. The argument to convince parliamentarians will be that the richest will be taxed to finance the distribution of income to the poorest.
The institution of a tax on the distribution of dividends is also in the PT’s plans, with the justification that it is necessary to charge the richest. This week, former president Luiz Inácio Lula da Silva said in an interview that a tax policy was needed in the country that would tax profits.
According to the source, President Bolsonaro’s decision to announce the maintenance of Auxílio Brasil at 600 reais was a response to Lula, who had already promised to keep the aid at 600 reais if elected. The PT is ahead of Bolsonaro in the voting intention polls.
According to the report, Bolsonaro was advised to announce the program as long as he finds ways to make it viable without harming the country’s fiscal situation, on the grounds that a disruption in public accounts would have a direct negative effect on exchange rates and inflation, hitting the poorest.
Another idea that circulated in the government, according to the source, would be to shift part of the resources from parliamentary amendments to finance the program. The idea is difficult to implement as it deals with funds of interest to deputies and senators.
OPTIMISM WITH GDP
Even after an upward revision of the government’s official projection for economic activity, this source states that the Executive’s perception is that the year’s result could be even better.
The assessment is that the sustained resumption of activity should lead the country’s Gross Domestic Product (GDP) to grow by more than 2% in 2022, with the expansion rate being able to reach 2.5%.
This month, the Ministry of Economy improved the official estimate for the performance of economic activity this year from 1.5% to 2.0%.
(Edited by José de Castro)