Passage through Congress should be Haddad’s first test for passing tax fixes
BRASILIA – The Minister of Finance, Fernando Haddad, announced an ambitious plan to reverse the fiscal deficit in the first year of government, has raised the bar on the fiscal target, but faces several obstacles. The first: the measures must go through the Congresswhich was not consulted by the economic group.
The return of the collection federal taxes on petrol and alcohol, from March 1, which can guarantee R$ 29 billion in revenue, is not guaranteed, depending on a decision from the government’s political sphere, as Minister Haddad clarified in the announcement of the measures last Thursday.
Another obstacle to face for the success of the package is that part of the measures, 80% concentrated on revenue recovery with the incentive to settle disputes with the Recipedepends on the behavior of taxpayers. “Minister Fernando Haddad is working within the political space that has been given to him,” says economist Marcos Mendes, research associate at Insper. “But it is not possible to make ends meet on the revenue side alone, because the country’s tax burden is already very high”.
Do not agree with the assessment of the secretary of the treasureRogério Ceron, that the measures will help stabilize the trajectory of public debt, as most of the measures are temporary. “The package is very focused on closing the accounts for 2023; but, starting from 2024, the deficit returns”, he says. In the economist’s accounts, maintaining the proposed measures and eliminating those of a non-recurring nature, the gap in the Confederation’s accounts in 2024 will be 1.8% of GDP. “To stabilize the net public debt we need a surplus of 2% of GDP. We are talking about an adjustment of 3.8 percentage points, which is more or less R $ 400 billion. Reforms,” he says.
On the expenditure side, he questions the government’s proposal not to execute BRL 25 billion of the Budget in 2023. “There is no legal backing for this. Because, since 2019, the budget imposes the risk of violating the result or the spending cap. But that’s not going to happen, because they’ve put a lot of spending outside the fiscal rules, like the nursing plan and so-called excess revenue investments,” he said.
casting vote
The most controversial of the measures and the government’s biggest gamble to recover revenue, with a potential to raise BRL 50 billion in 2023, is the return of the “deciding vote” in tie-breaking cases in the Administrative Council of Tax Appeals (Carf), court which judges, in administrative proceedings, the appeals of taxpayers against the assessments of the Revenue Agency, made up equally of representatives of the Revenue Agency and taxpayers.
Since 2020, in the event of an equal judgment for acts of infringement, the case has been resolved in favor of the taxpayers. With the new Provvedimento Provvisorio (MP) drawn up by the Lula government, the presidents of the judging bodies of the Bodies, always councilors representing the national Treasury, have again the power to break the tie in the judgment, through the preponderant vote of taxes and federal contributions, but the current urban planning minister, Simone Tebet, also voted in favor of the change.
“Tampering with a casting vote is a huge disrespect to Congress, which legislated it two years ago,” says tax expert Luiz Gustavo Bicharafrom the homonymous office. For him, this measure is based on the assumption that the Carf It is a body that must help in the collection of the government. “It’s not. Carf is a body that has to judge the collection of taxes in accordance with the law with tax citizenship,” criticizes Bichara, who is a special tax attorney at the Federal Council of the Brazilian Bar Association (OAB) and member of the commission of jurists set up by the Federal Senate for the reform of the legislation on administrative and tax procedures. He points out that some of the measures addressed in the package have been addressed in the drafts submitted by the committee to the Senate.
Gustavo Brigague, partner of Brigagão, Duque Estrada Advogados and president of the Centro Studi Legali (Cesa), evaluates the measure as a “major backlash”. “Judicialization will increase, because CARF will go back to acting as it did before the revocation of the decisive vote: all the relevant issues have been decided against the taxpayers, who are the weaker party,” he says. He said he will meet with representatives of other judiciary and tax institutions to develop a strategy on how the measure can be prescribed in the national Congress.
Raphael Vega, fiscal partner of Cascione Advogados, does not consider the decisive vote unconstitutional, but affirms that it must be used well to avoid abuses. “The decisive pro-tax vote cannot be used by Carf to clash with the judiciary in matters in which he is pro-taxpayer, because then it is only a disservice, it is only a postponement of the litigation,” he says.
The position presented by Minister Haddad was that the government suffered a loss of BRL 60 billion annually after the end of the casting vote. The minister’s speech was challenged by tax experts with the argument that the loss of revenue is due to the fact that Carf has only judged cases up to R$8 million in the last two years via video. In the economic sphere, it is estimated that this will be the great battle of the package, but with great possibilities of being approved by Congress, with the argument that this criterion of judgment has no precedents in other countries.
Another point that the government must overcome is the risk of legalization. The government wants to end the package to ‘clean up’ litigation with taxpayers, but ended up creating a new court case by revoking the Bolsonaro government’s last-day decree that cut PIS/Cofins rates on annuities by 50%. corporate finance large companies.
Message from Haddad
If the package has not been well received among tax experts, the reception has been more positive in the financial market. This was stated by the economist of XP Investimentos, Rodolfo Margato Stage the balance of the package is positive with the message launched by Haddad to seek budget balance and that revenue and expenditure will approach the same level as in 2022 in relation to Gross Domestic Product (GDP). “It is a valuation seen favorably by the market in consideration of the strong increase in spending on the Transitional PEC”, he assesses, recalling that the market had operated with a scenario of fiscal deterioration.
He believes, however, that some of the estimates depend on taxpayer compliance. With the package, XP projects that the primary fiscal deficit could decrease from R$167.0 billion (1.6% of GDP) to R$84.0 billion (0.8% of GDP) in 2023. In the report, XP believes that there could be jurisdictionalization of the CARF measures and, therefore, it is more difficult to estimate the outcomes of the measure. “We don’t expect any major revenue inflows from it.”
Marcos Mendes positively evaluated the creation of the fiscal risk monitoring committee and the priority given to the evaluation of public policies, but reiterated the need for a more targeted fiscal adjustment to cut spending: not only the return of federal taxation on fuels, but the restore of IPI, the cutting of tax breaks and the reform of the Bolsa Familiaalready in the sights of Ministry of Social Development. “The minister complained about this Paul Guedes made many exemptions. Then recall. But there are political limits to that,” she notes.
He says the government can try to balance the difficulty of making the necessary fiscal adjustment with “other positive news for the economy”: “speed up the tax reform and come up with a substitute for the spending cap that has good technical quality and manages to convince company to comply with this new spending limit,” he says.
The calculation has an impact of BRL 242.7 billion with measures
New revenue estimate
The economic team expects an impact of up to 36.40 billion reais on public finances
Use of ICMS credit
BRL 30 billion forecast
Collection of PIS/Cofins on financial income
BRL 4.4 billion
PIS/Cofins collection on fuel
BRL 28.88 billion
Change to Carf to speed up processes and tie a tie in favor of the government
50 billion reais
Incentive to spontaneously report tax evasion
20 billion reais
Use of blocked PIS/Pasep resources
BRL 23 billion
Review of contracts and programs
On the expenditure side, the estimate included in the package with this item is 25 billion reais
Spend less than authorized in the 2023 Budget
Expected savings of up to BRL 25 billion
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Source: Terra
Camila Luna is a writer at Gossipify, where she covers the latest movies and television series. With a passion for all things entertainment, Camila brings her unique perspective to her writing and offers readers an inside look at the industry. Camila is a graduate from the University of California, Los Angeles (UCLA) with a degree in English and is also a avid movie watcher.
