BRASILIA (Reuters) – Brazil’s Finance Minister Fernando Haddad said on Thursday the government aims to quickly reach a consensus with the Senate to find a fiscal solution to offset payroll tax benefits.
“We will put forth some proposals on the table starting next week, but mainly receive input from them (senators),” the minister told journalists.
The Senate had rejected a government executive order aimed at raising as much as 29.2 billion reais ($5.43 billion) this year through stricter rules for tax credits, which faced strong opposition from economic sectors.
The move by the Senate was interpreted by market agents as a weakening of Haddad, contributing to a sharp decline in the Brazilian real and an increase in interest rate futures on Wednesday due to concerns about a lack of support for the minister’s plan to balance public accounts.
Speaking publicly about the episode for the first time, President Luiz Inacio Lula da Silva told reporters in Switzerland that Haddad was an excellent minister, and that he assumed a responsibility that was not his by proposing an alternative to the fiscal compensation.
To accomplish eliminate the primary deficit this year, the government must offset revenue losses of 26.3 billion reais resulting from tax benefits approved by Congress for the payrolls of some economic sectors and small municipalities.
“Now the ball is no longer in Haddad’s court, the ball is in the Senate’s court and in the hands of the businessmen. Find a solution. Haddad tried. They didn’t accept it. Now find a solution,” Lula said.
The President reminded that the Supreme Federal Court ruled in May that a compensation must be identified within 45 days or approved tax exemptions on payrolls would not be valid.
Senators are discussing alternatives to make up for the revenue shortfall, including a program for repatriating funds held abroad and another for updating the assets of individuals and businesses in the income tax system.
Legislators have also mentioned the use of forgotten and unclaimed funds by individuals who have won legal actions and a recently approved tax levy on online orders below $50 as alternatives.
The Finance Minister also expressed on Thursday a commitment to review primary spending and cut privileges, focusing on addressing excessive public salaries, correcting unlawful benefits, and enhancing registries.
Regarding the central bank’s upcoming monetary policy meeting next week, Haddad refrained from commenting on market bets about a pause in the easing cycle, saying he trusts the technical expertise of decision makers.
Since August, policymakers have reduced the Selic benchmark interest rate by 325 basis points to 10.50%.
($1 = 5.3783 reais)
(Reporting by Marcela Ayres; Editing by Richard Chang)
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