Government plans to cut tax breaks, subsidies to enable Renda Cidadã
In an effort to enable the creation of the new cash-transfer program Renda Cidadã, the Bolsonaro administration and congressional leaders now discuss the possibility of removing up to 25% of tax breaks and subsidies.
The suggestion may be included in the federative pact constitutional amendment proposal (PEC), a rearrangement of the revenue and obligation distributions among the different levels of government, expected to be voted on next month.
A source involved in the talks says the cuts are "unlikely" to be linear - they would be variable instead and preserve, for instance, companies included in Simples Nacional, a simplified tax regime for small businesses.
At the same time, the Executive branch and lawmakers are negotiating what is being called a "partial indexation," which would include pensions and retirement payments above a minimum wage a month (R$1,045).
The government expects a Senate floor vote between December 8 and 10. This way, the Chamber of Deputies would be able to analyze the proposal in the following week, from December 15 onwards. Because it is a PEC, the matter must be approved in two rounds. The passage would be an important signal to the financial market that the government is committed to fiscal balance in 2021.
"No percentage cut [on tax breaks] is defined," one source says. "Linear cuts are unlikely," added the source. Valor confirmed, however, that the idea is to remove 20% to 25% of tax breaks. The change still needs the endorsement of President Jair Bolsonaro's inner circle before being brought to the public eye. Within the Executive branch, the matter is being discussed directly with the Secretariat of Government Minister Luiz Eduardo Ramos.
The tax relief currently applied to the basic food basket, a tax break that will cost R$17.6 billion in 2021, could be impacted, a source in the economic team says. The rationale is that the tax break must be cut but returned to the poorest population through the cash-transfer program. Those with higher income, currently benefited by the reduction in food prices, will not take advantage of the tax relief. In other words, the change would adjust the focus of this tax expenditure.
The solution, however, comes up against the spending cap, which prevents expenditures from growing faster than inflation. In practice, the cut in tax breaks and subsidies does not make room in public spending so that the government can spend on new fronts, like a new Bolsa Família, the main federal...
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