Brazil’s Senate Approves Payroll Break Without Tax Hike

Beatriz Reis and Fernando Travaglini
·2-min read

(Bloomberg) -- The Senate on Tuesday approved a bill to gradually reduce payroll taxes for 17 sectors of the economy, after Congress extend the waiver until 2027.

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The project, which will now go to the lower house, includes compensation measures for the benefit without raising the tax burden. A proposal from President Luiz Inacio Lula da Silva’s administration for an increase in the income tax rate for interest on equity to 20% from 15% was removed from the final text.

It was a step forward that the Senate voted on the payroll tax anticipating some compensation for the benefit, said Finance Minister Fernando Haddad. It is a new milestone in the relationship with the executive branch, and something to be celebrated, he added. The tax break would cost around 26 billion reais ($4.7 billion), according to government calculations.

Haddad also said the government agreed from the beginning with Senate head Rodrigo Pacheco’s strategy of first evaluating the measures presented by Congress and eventually taking additional steps if the proposal does not compensate for the entire waiver.

Central Bank

Lula talked to Pacheco about the plan of succession for central bank chief Roberto Campos Neto, who will finish his term later this year, Pacheco told reporters in Brasilia on Tuesday. He didn’t mention if Lula told him who will be his choice for the central bank.

Agreement

Pacheco and the president of the Supreme Court, Justice Luis Roberto Barroso, stated that there was consensus so that there is traceability and transparency of lawmakers’ budget amendments, according to a note on the top court website.

The Supreme Court’s decision to suspend mandatory budget amendments, in which the federal government is obliged to pay direct transfers of public resources indicated by lawmakers, increased tensions between the judiciary and Congress and led to Tuesday’s meeting between the heads of the legislative and judiciary branches, as well as Lula’s Chief of Staff Rui Costa, among other authorities.

The understanding, according to the Senate website, is that special transfer parliamentary amendments, known as Pix amendments, will be directed primarily to unfinished infrastructure works. The other individual, bench and committee amendments continue to be mandatory. The parameters must be defined within 10 days, according to a note on the court’s website.

According to Folha de S.Paulo, however, the meeting had moments of high tension between representatives of the three branches of government. Lower house Speaker Arthur Lira did not like the outcome of the meeting and left earlier than the other participants, says the report, which cites government members as the source of the information. Lawmakers see maintaining the Pix amendments as a victory and foresee new rounds of talks, according to O Globo newspaper.

Other Highlights

  • Tax Reform: with a forecast of a 28% tax rate, senators want to review the increase in items in the basic food basket: O Globo

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