BRASILIA (Reuters) – A major challenge of Brazil’s income tax reform plan will be bringing people who do not currently pay the levy into the system for the first time, Finance Minister Fernando Haddad said on Friday.
The centerpiece of the tax overhaul, which was unveiled late last year, sparking market turmoil, will exempt Brazilians earning up to 5,000 reais ($876) per month from income tax, up from the current threshold of two minimum wages, or 2,824 reais.
Haddad said some of the revenue loss from that step would be offset by bringing non-payers into the system, but he acknowledged the difficulties of doing so.
“The challenge will not be exempting more (workers). The challenge will be to compensate for this by burdening those who do not pay,” he said in an interview with local media outlet ICL.
Haddad added that achieving economic growth coupled with low inflation was an “obsession” for President Luiz Inacio Lula da Silva’s government.
Amid an aggressive monetary tightening cycle led by the central bank, Haddad said it was “part of the game” to use interest rates to control inflation.
Since September, interest rates have already risen by 275 basis points to 13.25%, and policymakers have signaled another 100 basis-point hike in March to curb inflation, which they project to exceed 5% this year, above the official 3% target.
Asked about next year’s presidential election, Haddad said he thought Lula would be a strong candidate, saying the 79-year-old president was in good health. Haddad reiterated that he had no plans of running for political office himself.
Haddad also said the government plans to maintain subsidized credit lines for agribusiness under its so-called “Plano Safra,” but emphasized that the approval of this year’s budget – still pending congressional sign-off – is necessary to ensure funding.
On Thursday, the Treasury said that, due to the budget deadlock, financing under the 2024/25 Plano Safra would be suspended from Friday except for credit lines for small farmers.
($1 = 5.7092 reais)
(Reporting by Marcela Ayres; Editing by Helen Popper)
