Brazil’s President Lula has proposed a tax cut exempting workers earning under BRL5,000 from income tax to boost his popularity amid low approval ratings. The reform, benefiting 13.4 million workers, will offset revenue losses by increasing taxes on high earners. The initiative aims for fiscal neutrality and could enact significant changes in the tax landscape ahead of the 2026 elections.
Brazilian President Luiz Inacio Lula da Silva has recently introduced a plan to exempt individuals earning less than BRL5,000 ($880) per month from income taxation, which addresses a critical electoral promise amid his declining approval ratings. This tax reform legislation was submitted to Congress on March 18 and is expected to benefit around 13.4 million formal workers, comprising 32% of Brazil’s workforce, as reported by the Finance Ministry.
This initiative expands the existing exemption that allows over 10 million workers to avoid income tax under the current threshold of BRL2,824. “This is a neutral project. It won’t increase the country’s tax burden by a cent. What we’re doing is just making amends,” President Lula declared during the announcement made in Brasilia.
To compensate for the projected revenue loss of BRL26 billion ($4.6 billion), the government plans to raise taxes for approximately 114,000 high-income Brazilians, who represent only 0.06% of the population and earn more than $105,000 annually. This adjustment is anticipated to yield BRL34.12 billion.
With his current popularity at roughly 24%, the lowest across his three terms, Lula aims to enhance support among middle-class voters through this initiative. He expressed confidence in gaining legislative support, stating, “Now it’s worth it,” and emphasized the proposed measure’s potential to improve the lives of Brazilian citizens.
Brazil’s tax system has been criticized for its regressiveness, where the burden of direct taxes disproportionately affects poorer citizens. Moreover, dividends paid to shareholders are tax-exempt. The new proposal includes partial tax discounts for workers earning between BRL5,000 and BRL7,000.
Despite a projected BRL8 billion ($1.4 billion) surplus raising concerns over fiscal motivations, Treasury Executive Secretary Dario Durigan affirmed that the government is not pursuing a primary surplus with this initiative but is rather focused on maintaining fiscal neutrality. Legislative amendments to the proposal are anticipated as noted by Chamber of Deputies Speaker Hugo Motta.
If the proposal passes without significant alterations, it is predicted that 90% of taxpayers would be either fully or partially exempt from income tax. Finance Minister Fernando Haddad reiterated the proposal’s fiscal neutrality despite previous market apprehensions regarding potential fiscal imbalance. Should it receive approval this year, the new tax structure is expected to be implemented for the 2026 tax return, ahead of the upcoming presidential elections.
The proposed tax exemption for Brazilian workers earning less than BRL5,000 aims to fulfill a campaign promise and enhance President Lula’s popularity among middle-class voters. While the reform seeks to ensure fiscal neutrality, it raises questions about the broader impact on the country’s tax system and budget. If passed, the reforms would significantly decrease tax burdens for a large portion of the Brazilian population, positioning the administration favorably ahead of upcoming elections.
Original Source: www.intellinews.com
