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New Income Tax Exemption Bracket Could Benefit 20 Million Brazilians and Is the “First Real Attempt” to Combat Inequality, Says Minister.
The Minister of Finance, Fernando Haddad, envisions that the new income tax exemption for those earning up to R$ 5 thousand monthly will be sanctioned by President Luiz Inácio Lula da Silva by October. The statement was made to ICL Notícias this Tuesday (23) and echoed by Agência Brasil. If confirmed, the measure represents the largest adjustment to the table in decades and, according to the minister, is a central pillar in combating social inequality in the country.
The direct impact of the change is significant: 20 million Brazilians are expected to stop paying income tax during the current term, according to estimates presented by Haddad. The minister emphasized that the government has already updated the exemption bracket three times. “In one term, we went from an exemption threshold of R$ 1,9 thousand to R$ 5 thousand. This has never happened,” he stated.
The Focus on Structural Inequality
During the interview, Haddad (as reported by Agência Brasil) differentiated policies aimed at combating poverty, such as cash transfer programs that lifted Brazil off the hunger map, from actions focused on structural inequality. He argues that, although the country has succeeded in combating extreme poverty, the issue of income distribution has rarely been effectively addressed.
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“We are among the ten worst countries in terms of income distribution,” the minister stated, highlighting the urgency of the reform. The change in the income tax exemption is, in Haddad’s view, the “first real attempt” by the Brazilian state to address this issue. The strategy connects to a real increase in the population’s income, which, according to data from IBGE cited by the minister, has grown 18% above inflation in the last three years, the highest since the Real Plan.
The Challenge of Fiscal Reductions
To enable the new income tax exemption and other measures of fiscal justice, the Minister of Finance pointed out the need to reconsider what he classified as “the biggest scandal” of the Brazilian tax system: fiscal reductions. Haddad highlighted that the country still maintains over R$ 600 billion in reductions, an amount that, according to him, has approached R$ 700 or R$ 800 billion in the past.
The federal government has managed to reverse about R$ 100 billion of these benefits, a move that has drawn criticism from specific sectors, but that Haddad defends as essential. The logic presented, and reported by Agência Brasil, is to reduce the tax burden on consumption (which affects the poor more) and increase revenue from the income of the wealthier, in addition to closing loopholes that allow for reductions.
The Path in Congress and Social Justice
The implementation of the new income tax exemption up to R$ 5 thousand now depends on presidential sanction in October, but the debate on the tax structure continues in the legislative branch. Haddad emphasized that the National Congress has a “very important opportunity” to align Brazil to a path of greater social justice.
The goal, according to the minister, is ambitious: to remove Brazil from the list of the ten worst countries in income distribution. “We cannot continue to be one of the ten worst countries in terms of income distribution. It is very difficult to think of development with this level of inequality,” Haddad concluded, indicating that the change in income tax is part of a broader reform focused on those who earn more.
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