The Minister of Finance of Brazil, Fernando Haddad, announced this Wednesday cuts in public spending that will allow the Government to save 70,000 million reais (11,800 million dollars / 11,160 million euros) in the next two years.
In a nod to the middle class, Haddad also confirmed a income tax exemption for those who earn up to 5,000 reais ($840) per montha measure that generated nervousness in the São Paulo stock market this Wednesday and took the dollar to all-time highs.
According to the minister, part of the savings in spending will come from a reform in the military pension systemwith the establishment of a minimum age to move to the reserve and limits for the transfer of this type of retirement. “The measures combat privileges that are incompatible with the principle of equality. We are going to correct the excesses and guarantee that all officials are subject to the constitutional ceiling,” Haddad said in a statement on the national network in which he announced the main lines of the fiscal package. , expected for weeks by the financial market.
He also proposed changes in the rules for the payment of the salary bonus, an annual benefit granted to workers under a series of conditions, and in the distribution of the resources available to parliamentarians to attend to their electoral fiefdoms. He also guaranteed that the increase in the minimum wage “will continue to rise above inflation, in a sustainable manner, but within the new fiscal rule.” “Faced with the external scenario, with conflicts and trade wars, we have to take even more care of our home. That is why we are taking the necessary measures to protect our economy,” he justified. In his opinion, these initiatives “consolidate the Government’s commitment to the country’s fiscal sustainability.”
Haddad countered the cuts with this income tax exemption, a campaign promise of President Luiz Inácio Lula da Silva, whose term ends in January 2027. Currently, the official exemption range is up to 2,259.20 reais (380 dollars). The expansion of this limit will benefit around 35 million taxpayers, according to estimates by the National Association of Federal Treasury Auditors.
That announcement caused serious turbulence in the Brazilian financial market. The São Paulo stock market lost 1.7% today and the dollar reached a historical record (5.91 reais). Financial agents fear that the measure could make it difficult to control the public deficit, which is currently close to 10% of the country’s Gross Domestic Product (GDP), and make the announced spending containment useless.
However, to compensate for this possible drop in revenue, Haddad indicated that those who earn more than 50,000 reais ($8,400) per month “will pay a little more” of income tax.
Despite the high fiscal deficit, the Brazilian economy will grow above 3% this year, according to forecasts by the Government, the market and some international organizations. Furthermore, the country lives with one of the lowest unemployment rates in the last two decades (6.4%).
Despite the good macroeconomic data, Lula’s popularity is at its lowest level (35.5%) since he took power in January 2023, according to a survey released this month by the National Transport Confederation.
