O World Bank proposed a package of structural reforms so that Brazil simultaneously faces two of its biggest challenges: the growing trajectory of public debt and the emissions of greenhouse gases.
According to the bank, a 3% fiscal adjustment is required to contain public debt, but this effort does not need to come exclusively from spending cuts, but can be relieved with reforms that expand the tax base and eliminate harmful subsidies to the environment.
In the report “Two by one: policies to achieve fiscal and environmental sustainability”, released on Thursday (26), the institution argues that a green fiscal policy can generate “dividend doubles”, with simultaneous gains for the balance of public accounts and the environment.
Among the suggestions is the reformulation of the Rural Territorial Property Tax (ITR)considered “ineffective and outdated”. The proposal is to align the tax with international standards, with market values and higher rates for underused pastures.
“A limited ITR reform could generate 0.1% of GDP in revenue. If more ambitious, it can reach up to 0.6% of GDP,” the study estimates.
Another recommendation is the increase in fossil fuels taxes, especially in road transport, which is now out of the Brazilian Emissions Trade System (SBCE).
This measure would have the potential to raise the collection by up to 0.7% of GDP, as well as contributing to the reduction of emissions and improvement in public health.
“Brazilian fiscal policy is not now prepared to deal with increasing climate risks. But it can be part of the solution,” says Cornelius Fleischhaker, a senior economist at the World Bank and one of the report coordinators.
For him, linking part of federal transfers to the environmental performance of states is a way of aligning incentives and promoting the fight against deforestation.
The report also recommends the gradual elimination of fossil fuel subsidies, redirecting rural credit to sustainable practices and the introduction of carbon pricing in agriculture through fertilizers and other inputs.
According to the analysis, the removal of misdirected agricultural subsidies can generate an additional economy of 0.5% of GDP.
In the evaluation of Fabiano Colbano, also an economist at the World Bank, “the combination of fiscal reform and intelligent environmental policy can help Brazil grow more, with social justice and preservation of natural assets.”
The entity praises recent initiatives, such as the Ecological Transformation Plan and the creation of SBCE, but evaluates that additional instruments are needed.
The projection is that, if adopted the set of measures proposed, Brazil can reduce its emissions by up to 50% by 2050, raise GDP by 5.6% and improve the primary balance by 0.3% of GDP, on average between 2026 and 2050.
For the World Bank, the country has a “window of opportunity” to promote these changes. “Equity for future generations requires action now, with better fiscal and environmental management. The cost of inaction will be high,” concludes the report.
