Brazil’s Haddad defends fiscal plan amid congressional pushback

On Thursday, Brazil’s Finance Minister Fernando Haddad attempted to clarify that the government’s new fiscal package does not include massive tax increases, despite growing political opposition in Congress.

In comments to reporters a day after President Luiz Inacio Lula da Silva’s administration published a series of measures to increase revenues through an executive order, Haddad stressed that the proposals sought to correct tax system distortions without hurting average citizens.

The new package arrives at a crucial moment for Latin America’s largest economy, with the government still trying to eliminate the country’s main budget deficit this year.

However, lawmakers have promptly expressed alarm, calling for cuts, not what they think of as tax hikes.

New measures target the financial sector and betting platforms

The presidential order implements numerous major measures, including taxes on online betting platforms, a single income tax rate for financial investments, the abolition of preferential charges on financial corporations, and greater oversight on how companies employ tax offsets.

According to Reuters, these amendments seek to promote justice and transparency in Brazil’s tax code.

A 5% income tax on currently exempt debt securities totals 1.7 trillion Brazilian Real (1 Brazilian Real = 0.18 US Dollar).

According to Haddad, this decision resolves a market imbalance that is costing the government an estimated 41 billion Real in lost revenue.

To alleviate political tensions, Haddad emphasised that these changes mostly affect sectors that have traditionally received preferential treatment.

“It makes no sense calling this a tax hike,” he said, characterising the revision of financial industry taxation as a remedy for current distortions rather than the imposition of new obligations.

Revenue goals tied to broader economic strategy

That fiscal package is meant to offset the repeal of a tax hike on credit, foreign exchange, and private pension operations that was rejected by widespread protests last month.

Aside from the new measures, the government forecasts that exceptional dividends from state firms and revenue from a planned oil auction will result in an additional 20 billion Real ($3.61 billion) in revenue this year.

The government estimates 10.5 billion Real would arise from the new measures this year, including 10 billion from tougher rules on tax offsets.

In 2026, the figure is expected to reach 20.9 billion Real due to the implementation of consolidated income tax laws.

Congressional opposition emphasises political hurdles

Despite the administration’s efforts to characterise the idea as a reform aimed at privileged sectors, the proposal received immediate opposition in Congress.

Lawmakers, including those from the ruling coalition, said they would oppose any tax-related reforms unless they were accompanied by substantial budget cutbacks.

This opposition is the latest in a string of budget struggles for Lula’s administration, which has failed to impose spending cuts.

Many cost-cutting ideas have been denied or considerably weakened during the legislative process, leaving the administration increasingly reliant on revenue-raising measures.

Haddad’s comments looked to be geared at calming both markets and politicians, implying that economic goals can be met without badly harming ordinary Brazilians’ daily lives.

He cited internet betting as an example of a fair target for taxation, claiming that it “doesn’t create a single job”.

Fiscal consolidation remains a fundamental government goal

Since President Lula assumed office in 2023, establishing fiscal restraint has remained a top focus despite rising state spending, particularly on social and pension programs.

The government is still attempting to strike a delicate balance between progressive social initiatives and commitments to financial stability.

The current fiscal plan is part of a larger attempt to realign Brazil’s budget without imposing austerity.

However, as the political discussion heats up, the success of this endeavour will most likely depend on the administration’s ability to reach major agreements in Congress.

Haddad maintains that the new restrictions are a reform, not an additional cost. This distinction may be crucial in the ongoing fiscal battle in Brazil.

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