After a wait of more than a month and successive meetings between the president Luiz Inácio Lula da Silva (PT) and some of the main government ministers, the Minister of Finance, Fernando Haddad (PT)finally announced the main measures of the federal Executive’s spending cut package, which had been awaited with a mix of tension and expectation by the market.
According to the minister, the savings generated by the fiscal package should reach R$70 billion over the next two years.
“These measures I mentioned will generate savings of R$70 billion over the next two years and consolidate this government’s commitment to the country’s fiscal sustainability,” stated Haddad.
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on Wednesday night (27), the head of the economic team announced the first measures of the fiscal package and also confirmed that . Currently, those who earn up to R$2,259.20 per month are exempt.
Increasing the income tax exemption range is a campaign promise from Lula and, according to interlocutors at Palácio do Planalto, it has become almost an “obsession” of the President of the Republic since he took office for the third term, in January last year.
As a way of compensating for the increase in expenses due to the expansion of the exemption range, the government proposes the taxation of profits and dividends exceeding R$50,000 per month, which are currently exempt. Planalto’s estimate is that this taxation would fully compensate for the increase in spending with the expanded income tax exemption.
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“Today we also announce the biggest income reform in our history. Honoring the commitments made by President Lula with the approval of the income reform, an important part of the middle class, which earns up to R$5,000 per month, will no longer pay income tax”, said the minister.
According to the head of the economic team, the exemption “will not increase government spending” “The new measure will not have a fiscal impact, that is, it will not increase government spending. Because those who have an income of more than R$50,000 per month will pay a little more”, he stated.
Watch Minister Fernando Haddad’s speech:
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Both measures announced by Haddad depend on approval by the National Congress.
The Finance Minister also announced measures to contain public spending, the main concern of economic agents. Among them are:
- Inclusion of the minimum wage increase policy in the limitations of the fiscal framework;
- Proposal to end salaries above the constitutional ceiling, the so-called “super salaries”;
- A call for beneficiaries of social programs, such as Bolsa Família and Benefício de Prestação Continuada (BPC), to update their data, if they have not done so in the last two years;
- Changes in military retirement and pension rules, such as the end of fictitious death – which allows the payment of pensions to relatives of those who were expelled from the Armed Forces;
- Setting a minimum retirement age for military personnel (55 years old), accompanied by a transition rule.
According to the economic team’s estimates, the set of measures in the fiscal package should generate savings of around R$30 billion to R$40 billion per year.
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Minimum wage within the framework and review of social programs
In his speech, Fernando Haddad did not go into details regarding the measures of the fiscal package, which should only happen on Thursday (28), when the minister will participate in a press conference.
According to Haddad, the minimum wage adjustment will be limited to 2.5% per year, in addition to inflation. Under the rule currently in force, the minimum increase is calculated based on the National Consumer Price Index (INPC) for 12 months (from December of the previous year to November of the current year), plus the variation in Gross Domestic Product (GDP) of the year before last.
In practice, this means that, if Brazil’s GDP in this and future years increases by more than 2.5%, the minimum adjustment will be smaller, with the new rules, than currently predicted.
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Another measure considered “unpopular” by members of the government is a greater restriction on the benefit of the salary bonus (a type of 13th salary paid to formal workers who receive up to two minimum wages, or R$2,824.00).
According to the proposal that the government will forward to Congress, the bonus would be available to those who receive up to R$2,640.00.
Over a period of a few years, according to the proposal presented by the economic team, the bonus would be paid to anyone receiving up to one and a half minimum wages per month.
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“To serve families who need it most, the salary bonus will be guaranteed to those earning up to R$2,640. This value will be adjusted for inflation in the coming years and will become permanent when it corresponds to one and a half minimum wages”, explained Haddad.
Government members estimate that the benefit – which will cost R$30.7 billion in 2025 – could therefore be more concentrated on the poorest. According to current rules, an increasing number of people have benefited from the bonus, which is driven by the policy of increasing the minimum wage.
Another pillar of the measures presented by the Ministry of Finance to Lula is the adoption of instruments that would help optimize the review of social policies, minimizing possible irregularities. One of the ideas raised is the requirement for biometrics.
Another step is to expand the target audience for the review, previously restricted to people whose registration is more than 48 months out of date. With the expansion, this time should be reduced to 24 months.
Military retirement and “combat privileges”
In his speech on national television, the Minister of Finance also mentioned the measures that change military retirement rules – which were added to the package at the last minute, also at Lula’s request.
The government will establish a minimum age, with a transition rule, which foresees that retirements will be staggered. Furthermore, the proposal is to end pensions for fictitious death – when the family of a soldier expelled from the corporation receives a pension.
In his speech, Haddad also said that the measures in the tax package “also combat privileges incompatible with the principle of equality”.
“We will correct excesses and ensure that all public agents are subject to the constitutional ceiling. Together with the Federal Supreme Court and the National Congress, we improved the budget rules”, said the minister.
According to Haddad, the amount of parliamentary amendments must grow below the limit of fiscal rules — and 50% of committee amendments will “mandatorily” go to the Unified Health System (SUS).
“To guarantee the results we expect, in the event of a primary deficit, the creation, expansion or extension of tax benefits will be prohibited,” concluded Haddad.
Package faced resistance
Discussions about the Lula government’s spending cut package dragged on for more than a month. The announcement of the measures was promised shortly after the second round of municipal elections.
The week before last, Lula had practically daily meetings to discuss the matter. At the time, the president asked Haddad to postpone an official trip to Europe to remain in Brasília (DF) and participate in meetings on the fiscal package with other ministries.
Ministers who command portfolios linked to the social area, such as Wellington Dias (Social Assistance), Carlos Lupi (Social Security) e Luiz Marinho (Work) were among those who strongly resisted fiscal adjustment.
Since the end of October, Marinho has publicly raised his tone against the economic team and workers.
“If no one talked to me, there is no [debate sobre essas supostas mudanças]. I am responsible for Labor and Employment. Unless the government fires me”, said Marinho.
case of cost-cutting measures that, in his view, would be “acquired rights” – or change the policy of increasing the minimum wage.
“Our biggest challenge is fiscal balance. How can we do this given the misery of the Brazilian people? I want to discuss taxation of great fortunes. Haddad is even proposing this. Those who have to donate something in this process are those who have a lot, not those who have nothing. How are you going to get Social Security?” asked Lupi.
“The average salary for people is R$1,860. What am I going to do with this? Take away acquired rights? Don’t count on me. Will I lower my salary? Don’t count on me. I will no longer have any real gains [no salário mínimo]? Don’t count on me. If that happens, I can’t stay in government. I don’t think the government will do that. We have to charge large debtors, tax evasion and undue exemptions”, stated the minister.
This Wednesday, it was up to the Minister of Labor, Luiz Marinho, during a press conference in Brasília (DF), about the numbers from the General Register of Employed and Unemployed People (Caged), released earlier.
Projects sent to Congress
On the afternoon of this Wednesday (27), .
Also participating in the meeting were the Chief Minister of the Civil House, Rui Costa (PT)and the minister of the Secretariat of Institutional Relations, Alexandre Padilha (PT). The meeting should take place in the late afternoon.
At the beginning of the week, the InfoMoney reported first-hand.
Sources who met with members of the government’s core economic team stated that the package had already been defined, but was still undergoing “final drafting adjustments”. The predominant assessment in Planalto was that the government wasted too much time discussing the topic and needed to announce the measures.
The government will send to Congress a Proposed Amendment to the Constitution (PEC) and a Complementary Bill (PLC) with fiscal measures.
Lula and Haddad hope that both projects will be approved later this year, but there are doubts as to whether there will be enough time for this, given the busy agenda on the Legislative calendar before the parliamentary recess – with the need to evaluate other important proposals, such as the regulation of tax reform.
Expectations from market analysts
According to the 59th round of , a survey carried out by InfoMoney with some of the main consultancies and political analysts operating in Brazil, — a level of dispersion that indicated the degree of uncertainty at the moment.
The survey showed that the average bet by political analysts was R$ 29.94 billion in savings generated with possible actions not yet announced. The number is practically the same as the median: R$30 billion. One of the participating consultancies chose not to answer this question.
The financial market anxiously awaited the presentation of a package of expense control measures promised by the federal government for after the municipal elections. The idea is that the set of actions will help point to the sustainability of the new fiscal framework and reduce the level of economic agents observed in recent weeks.
The Executive Branch had to focus on initiatives that contain the evolution of expenses classified as mandatory, which account for more than 90% of the Federal Budget and each year grow above the limit of 2.5% real established by the fiscal framework (which requires increasingly greater cuts in discretionary spending, which includes public investments).
