BRASILIA – In defense of the accelerated tax cut made by Jair Bolsonaro’s government, the Economy Ministry on Wednesday released 29 studies showing that the downward trend in total government debt does not change with tax credits. According to the Secretariat for Economic Policy (SPE), debt may fall more with lower taxes affecting the country’s economy and productivity than a scenario without tax breaks.
The simulations carried out by the Secretariat for Economic Policy (SPE) of the evolution of public indebtedness to 2030 take into account four scenarios for an additional increase in GDP.
In the first scenario, there is no change in economic growth. In other countries, an additional increase in activity of 0.3 and 0.5 percentage points of GDP is expected compared to the scenario without exceptions.
The data showed that despite the initial deterioration of public debt in the early years, due to lower collection, from 2024 onwards, there is a reversal of the level of total debt for higher economic growth scenarios.
In scenarios of 0.5 point increase in activity, total debt reaches the end of 2030 at lower levels than in the scenario without exceptions. It decreases from 78.3% in 2021 to 69.1% of GDP in 2030. In an economic framework without tax cuts, the debt would be at 69.8%. Even in the scenario without additional GDP growth, debt would be 72.3% lower.
Between 2018 and 2024, tax cuts totaled R$111.4 billion. With the federal tax exemption on gasoline and ethanol, estimated at between R$16 billion and R$20 billion, exemptions should rise to R$131 billion.
In 2022 and 2023, the most expressive effects of tax cuts were concentrated due to the policy adopted by Economy Minister Paolo Guedes, which she calls the return of “excess collection” to the economy.
This exemption was strengthened due to the covid-19 pandemic and then this exemption was accelerated from 2022, the election year. The operation has been heavily criticized because most of the increase in revenue, which allowed for tax cuts, is a reflection of situational effects, such as higher inflation and higher international commodity prices. Last year, the nominal increase in collection exceeded R$350 billion, and the increase, in real terms, was nearly R$260 billion.
The study is an attempt to respond to critics who see risks to public accounts in the future when the situational effects of high inflation are overcome.
According to Minister of Economic Policy Pedro Calhman, the tax cut measures represent changes in the economy on the supply side that make way for less resource misallocation and higher productivity in the Brazilian economy.
Al-Amin emphasized that the overall tax burden of the general government (central government, states and municipalities) amounted to 33.90% of GDP, 2.1 percentage points higher than the previous year.
“Brazil’s tax burden remains high and similar to that of developed countries, such as Japan, the United Kingdom and the average for OECD countries in 2020,” he says. Brazil also has a higher tax burden than the average for Latin American and Caribbean countries, especially Chile, Mexico, and Argentina.
For Under Secretary for Macroeconomic Policy, Fausto Vieira, the linear tax credit is more efficient than cuts made in the past targeting specific sectors, such as the payroll exemption.
Vieira asserts that “GDP grows in response to the exemptions. Household consumption increases and productivity rises in this scenario.”
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