Economy

Bolsonaro raises financial tax to fund cash transfer program that could replace Bolsa Família

By defining the change by decree, Bolsonaro prevents the issue from being analyzed by the National Congress

Brazil's President Jair Bolsonaro looks on during a ceremony at the Planalto Palace, in Brasilia, Brazil September 15, 2021. REUTERS/Adriano Machado
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Brazil‘s President Jair Bolsonaro on Thursday signed a decree to raise taxes on financial transactions (the so-called IOF tax) for three months to pay for Auxílio Brasil, a cash transfer program that could replace Bolsa Família.

His office said it expects the higher IOF tax, which is charged on credit, foreign exchange, insurance transactions, or bonds or securities, to generate BRL 2.14 billion ($407.13 million).

By defining the change by decree, Bolsonaro prevents the issue from being analyzed by the National Congress. The new rates will take effect between next Monday (20) and December 31st. The IOF is calculated daily. Under the current rules, individuals pay 1.50% per annum of IOF, and legal entities 3%. With the change, these rates will go to 2.04% and 4.08% per year, respectively.

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Between April and December 2020, motivated by the initial impact of the Covid pandemic on the Brazilian economy, the government zeroed the IOF tax rate until the end of the year.

However, since January 1 of this year, the collection was resumed, making borrowing more expensive.

In a statement, the Ministry of Economy informed that the measure to raise the IOF would offset the increase in BRL 1.62 billion foreseen with the creation of Auxílio Brasil. The Fiscal Responsibility Law requires that for each new expense created; it is necessary to indicate the source of income that will pay for this expense. Jair Bolsonaro‘s government says it had to take this step to continue providing financial assistance to families affected by the pandemic, in a continuation of the emergency aid initiative until December.

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As of 2022, the intention is to finance the program, a possible replacement for Bolsa Família, the largest income transfer program in the country and Latin America, with the re-creation of the income tax on profits and dividends, a proposal that is being discussed in the Senate. In August, the Special Secretary for the Treasury and Budget of the Ministry of Economy, Bruno Funchal, projected an additional cost of BRL 26 billion to BRL 28 billion for the program in 2022.

Bolsonaro has already sent a provisional measure on the new program to Congress but has not yet disclosed the amount it will pay to its beneficiaries.

As the government discusses this new program – which also caters to Bolsonaro’s electoral whim to replace the program created by Luiz Inacio Lula da Silva in 2003 – nearly 1.2 million Brazilians are awaiting inclusion in Bolsa Família, the existing program, according to a report by the newspaper O Globo.

Previously, any Brazilian who met the Bolsa Família rules (families in extreme poverty, with an income of up to BRL 89 per month per person, and poverty, with an income of BRL 89.01 to BRL 178 per person) was automatically included in the program. However, with the economic crisis of 2015 and 2016, and now with the pandemic, more people lost their sources of income and started to need the program, putting pressure on the already planned expenses and, therefore, creating this queue of new beneficiaries.

If the current budget forecast is no longer able to include the people who are in line and need the benefit now, what can be expected from Bolsonaro’s administration’s new cash transfer program? This is not yet clear.

(Co-written by LABS)

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