Brazil’s Lula Proposes Tax Cuts for Middle Class Amid Low Approval Ratings
Brazil’s Lula proposes an income tax exemption for workers earning under BRL5,000 to fulfill a campaign pledge and address low popularity. The reform could benefit 13.4 million workers, funded by increased taxes on the wealthy. Despite potential fiscal implications, the President is optimistic about gaining middle-class support ahead of upcoming elections.
Brazilian President Luiz Inacio Lula da Silva has announced a plan to exempt individuals earning less than BRL5,000 (approximately $880) per month from income tax, aimed at fulfilling a key campaign promise amidst flagging approval ratings. This tax reform, presented to Congress on March 18, targets around 13.4 million formal workers, roughly 32% of the country’s workforce, per the Finance Ministry’s data.
Currently, over 10 million working individuals are already exempt under the existing income threshold of BRL2,824. President Lula emphasized, “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,” during the announcement in Brasilia.
To counterbalance the revenue loss projected at BRL26 billion ($4.6 billion), the government proposes to raise taxes on approximately 114,000 wealthy Brazilians, who form 0.06% of the population and earn more than $105,000 annually. This initiative is expected to generate BRL34.12 billion in revenue.
With his popularity languishing at around 24%, the lowest in his three-term career, Lula is optimistic that this move will resonate with middle-class voters. He expressed, “Now it’s worth it,” expressing confidence that Parliament would endorse the measure to provide tangible benefits for Brazilian citizens.
Brazil grapples with a regressive tax system where lower-income individuals contribute a higher proportion of their income in taxes than their wealthier counterparts. The proposal also includes partial tax discounts for workers earning between BRL5,000 and BRL7,000. However, concerns have emerged about the fiscal implications of a projected BRL8 billion ($1.4 billion) surplus associated with this plan.
Despite skepticism, Treasury Executive Secretary Dario Durigan clarified that the government is not targeting a primary surplus but is instead focused on maintaining fiscal neutrality. Chamber of Deputies Speaker Hugo Motta indicated that lawmakers might alter the proposal before its approval. If enacted without substantial modifications, 90% of taxpayers could enjoy full or partial exemptions from income tax.
Finance Minister Fernando Haddad reassured stakeholders that the proposal is fiscally neutral, even as market apprehensions about possible fiscal imbalances persist. Should this reform receive approval this year, the revised tax structure would be applicable for the 2026 tax return, coinciding with the presidential election scheduled for that same year.
President Lula’s proposed income tax cuts aim to alleviate fiscal pressure on middle-class workers while enhancing his declining approval ratings. The reform seeks to balance the financial impact through increased taxes on high-income individuals, thereby demonstrating an effort towards a more equitable tax system. However, concerns about the overall fiscal implications remain prominent as lawmakers consider the proposal’s modifications prior to approval.
Original Source: www.intellinews.com
