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Taxation? – about unfair criticisms of Haddad
by Paulo Nogueira Batista Jr.
Awake today with the desire to defend Minister Haddad. It doesn’t always happen. Due to differences in temperament, primarily. In my humble opinion, Haddad falls short due to an excessively conciliatory spirit. Concerned, sometimes a bit too much, about attending to local plutocracy and the financial system, the Minister of Finance may make mistakes.
For example, the government was put in a tight spot when it proposed a relatively inflexible fiscal framework with ambitious goals that are now taking their toll. The goals for 2025 and subsequent years were flexibilized (correctly) and some safety valves were found. However, the goal of a zero deficit for 2024 remained, with a tolerance interval of only 0.25 percentage points of GDP up or down. The new projections from the Finance Ministry indicate a primary result at the bottom of the goal, i.e., a deficit of around 0.25% of GDP.
The problem remains, therefore, inducing the government to block or reduce essential expenses, particularly public investments, federal government operating expenses, and social transfers.
The reader or reader who is more “realistic” (or more “conformist”?) will say that the “balance of forces” in society, the media, and Congress does not allow for much difference. It may be. However, “balance of forces” is not an objective fact, fixed and independent of the actions of the rulers.
Unfair criticisms of Haddad
But I put aside those voluntary and enthusiastic outbursts and enter the subject I wanted to address today. It is the following: many of the criticisms of Haddad are unfair. They have now invented that the Minister of Finance is a tax enthusiast, coining the simplistic expression – “Taxation”. The obvious goal is to not only target Minister Haddad, but also President Lula.
I do not see how to sustain this criticism. Let’s take a quick look at some statistics, without the pretension of exhausting the subject or even addressing all its main aspects.
The global tax burden in Brazil (including central government, states, and municipalities) has oscillated between 31% and 33% of GDP since 2010. The central government’s burden has oscillated between 21% and 23% of GDP. From 2022 to 2023, the first year of the supposed “Taxation” minister, the central government’s burden fell slightly, from 22.4% to 22% of GDP.
Are there reasons to predict an increase in the global tax burden in 2024? There is no clarity on this yet. We know that federal revenue increased 8.7% in real terms in the January-May period compared to the same period in 2023 (including non-recurring factors) and 5.4% (excluding these factors). These non-recurring factors include income from the taxation of exclusive funds and abroad and the disaster in Rio Grande do Sul.
Is this growth a problem? I don’t think so. Would there be conditions to obtain the government’s accounts adjustment, insisted upon by the media and the financial system, by simply cutting expenses? Without increasing revenue and without touching interest on debt? What seems to want the plutocracy and traditional media is for the adjustment to be made on the backs of the lower classes, cutting social transfers such as the continued benefit for people with disabilities, supposedly to curb irregularities. They would also like the elderly to pay the price of adjustment, reducing the correction of pensions and benefits. However, they would maintain the generous tax exemptions and high interest rates for the wealthy, while keeping the poor and middle class in the dark.
If Lula follows this path, I ask, will he not be breaking his campaign promise to put the poor on the budget and the rich on the income tax?
Privileges of the rich and super-rich
This leads directly to another important question: who bears the burden of an eventual increase in taxes? We are, of course, facing a distributive issue.
The rich and super-rich want to maintain their various privileges – exemptions, deductions, low taxation of wealth and high incomes, high interest rates, and so on. They do not want to hear about giving their contribution. When we try to correct the injustice, a chorus of complaints arises in the business community and the media, complaining about the “voracious tax appetite” of the government. This is exactly what is happening with Haddad. Discreet steps he has taken are met with stones.
Who pays taxes in Brazil, remember, are fundamentally the poor, through indirect taxes, and the middle class, through personal income tax. The rich and super-rich live in a tax paradise. The wealth tax, provided for in the Constitution since 1988, has never been implemented. The taxation of wealth (lands, inheritances, and donations, among others) is low compared to international standards. And, thanks to the privileged treatment of capital income in personal income tax (exempt income, proportional taxation of financial income, and exemption for certain applications), the effective tax rate on high-income brackets is small, lower than that applied to the lower middle class.
The Lula government has tried to address the issue. It increased the exemption threshold for personal income tax, for example. It taxed closed-end funds and abroad. Positive was the initiative of Haddad to invite economist Gabriel Zuckman, an expert on the subject, to formulate proposals for the G20 on taxing the super-rich internationally.
But more needs to be done. The last point, for example, should not be used as an argument or excuse to delay what can be done, nationally, to increase the taxation of Brazilian super-rich. The assumption that they would flee to other countries is dubious. After all, where would they find a country that offers such high returns on liquid assets and no real credit risk?
Haddad spent political capital from the government in his first two years, championing a consumption tax reform of the conventional type, which was already on the congressional agenda. It has its merits, but it does not significantly improve the regressive structure of the tax system and only has positive effects on the economy in the long term – in the time when, as Keynes said, we will be dead.
Now, the government may have difficulty proposing and implementing a more just taxation of income and wealth. The privileged ones celebrate, particularly.
They do not recognize it publicly, however. On the contrary, they promote a campaign to label Haddad as an enthusiast of increasing the tax burden…
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A summary version of this text was published in the magazine Carta Capital.
Paulo Nogueira Batista Jr. is an economist, former vice-president of the New Development Bank, established by the BRICS in Shanghai, from 2015 to 2017, and executive director at the IMF for Brazil and ten other countries in Washington, from 2007 to 2015. He published the book The Brazil Does Not Fit in Anyone’s Backyard, second edition, 2021, by LeYa.
E-mail: [email protected]
X: @paulonbjr
YouTube Channel: youtube.nogueirabatista.com.br
Portal: www.nogueirabatista.com.br
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