The Minister of Finance, Fernando Haddad, presented this Wednesday (27), the spending cut package that foresees savings of R$70 billion over the next two years: R$30 billion in 2025 and R$40 billion in 2026 .
The measure seeks to ensure the sustainability of the fiscal framework, which stipulates zero deficit for public accounts in 2024.
Haddad highlighted that the overall amount of parliamentary amendments will grow below the limit of fiscal rules. Furthermore, 50% of the amendments from Congressional committees will be allocated to public health, strengthening the SUS.
“The measures consolidate this government’s commitment to the country’s fiscal sustainability. To guarantee the results we expect, in the event of a primary deficit, the creation, expansion or extension of tax benefits will be prohibited”, stated the minister.
The package also includes changes to the rules for salary bonuses and the Continuous Payment Benefit (BPC).
To balance the cuts considered unpopular, a benefit was announced: the expansion of Income Tax exemption for those earning up to R$5,000, a campaign promise from Lula.
The benefit will be offset by an increase in taxes on the richest taxpayers.
“We reaffirm our commitment to Brazilian families: protecting jobs, increasing purchasing power and ensuring the sustainable growth of the economy. Honoring the commitments made by President Lula, we are promoting the biggest income reform in our history. With the approval of this reform, an important part of the middle class, which earns up to R$5,000 per month, will no longer pay Income Tax”, declared Haddad.
The announcement of the package and exemption generated divisions within the economic team, as revealed behind the scenes. Some members would have warned of the negative impact on communication, fearing that the combination of cuts and concessions would reduce the credibility of the fiscal adjustment.
Since Wednesday morning, it was already having repercussions on the financial market. The dollar reached a maximum price of R$5.9288 and ended the day at R$5.912, the highest value since 2020. Ibovespa, the main index of the Stock Exchange (B3), closed down 1.73%, the 127,668 points.
Market analysts criticized the measure, stating that it reduces the credibility of the fiscal adjustment and increases the risk of imbalance in public accounts. “The government cut on one side and opened new expenses on the other”, they summarized.
Haddad’s announcement ends a soap opera that had been going on for more than a month. The initial proposal would be released shortly after the second round of municipal elections, on October 27, but suffered successive postponements.
Before the speech, Haddad presented the proposal to President Luiz Inácio Lula da Silva, the presidents of the Chamber and Senate and party leaders.
See what was announced in the package that provides for spending cuts
Adjustment of the minimum wage
The minister announced that the minimum wage will be readjusted in a “sustainable” way. This means a limited real gain of between 0.6% and 2.5%, according to the expenditure growth range of the fiscal framework. Currently, the rule considers the adjustment for inflation and the increase in GDP from two previous years.
IR exemption
The Income Tax exemption range, currently at R$2,824.00 per month, will be increased to R$5,000.00. According to Warren Investimentos, the change will cost at least R$45.8 billion. “This calculation is optimistic, it is worth saying, as it considers that the Income Tax table would be modified, guaranteeing that the benefit would only be focused on lower-income taxpayers”, stated Felipe Salto, chief economist at the consultancy.
Taxing the super rich
As a form of compensation, the minister announced an increase in Income Tax for those earning more than R$50,000 per month, but did not reveal the exact percentage. “Everything without excess and respecting established international standards”, highlighted the minister.
Benefits of the military
Although without detailing the measures, the minister confirmed that there will be changes to the Armed Forces’ paid reserve. One of the changes may include setting a minimum age of 55 for soldiers to enter the paid reserve. Currently, the only criterion is length of service, at least 35 years, with no minimum age requirement. The charging of a 3.5% contribution to the military health fund is also being studied.
“To ensure that public policies reach those who really need them, we will improve the control mechanisms, which were dismantled in the previous period. Fraud and distortions delay service to those who need it most. Regarding military retirements, we will promote more equality, with the establishment of a minimum reserve age and the limitation of pension transfers, in addition to other adjustments. These are fair and necessary changes”, stated the minister.
Fight against super wages
The government expressed support for limiting so-called “super salaries” in the civil service. A bill that addresses the issue has been under analysis in the Senate for three years. The estimate is that the measure could generate savings of R$3 billion to R$4 billion per year. However, Movimento Livres’ calculation questions this savings potential. According to the think tank, the proposal allows 32 “penduricalhos” to continue to be paid to civil servants without being subject to the constitutional ceiling.
