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There are numerous reasons for this continuing growth of the tax burden - perhaps the most important was the 1988 Constitution

The Brazilians’ tax burden may reach 40% of GDP in the second term of President Dilma Rousseff. It is a level of taxation only found in some countries of extremely high income, such as the Scandinavian countries. Which would explain such a ratio of tax burden?

The President José Sarney met a tax burden of just over 22% of GDP when he started the government presidence. Since then, the tax burden has just made up. It exceeded 32% at the beginning of the Lula government and must have come close to 38% at the end of the first term of President Dilma Rousseff.

There are numerous reasons for this continuing growth of the tax burden. Perhaps the most important has been the constitution of 1988. The "Citizen Constitution" was generous in granting benefits without creating the necessary funding responsibilities of these benefits.

The net result was the huge growth in early expenditure, and later taxes to afford them. Most of these expenses has become mandatory, either by the Constitution or by infra-constitutional legislation. Add to the compulsory expenditure revenues of bindings and we have the setting scene for budgetary rigidity.

Some argue that the Constitution is the result of a "social pact" and that reflects the will of the majority of Brazilian society. Modify what is there require a new "social pact" that would reduce the compulsory and the links recipes, returning to the Executive the ability to adjust the public accounts without increasing the tax burden.

It would not be easy, as the new "pact" would imply the redefinition of the state's role in Brazilian society. The number of state functions would need to be drastically reduced and, with the new functions would require him to substantially increase the effectiveness and efficiency of delivery of public services.

It would be a renegotiation of that order of chimera magnitude, simple summer dream? Is there any case in any society that has radically changed the state's role, making it fit in the amount of resources that this same society is willing to put at your disposal? There are concrete examples, which does not mean we are willing to follow them. Margaret Thatcher made sweeping reforms of the state's role in British society within what was possible to do it. There are other examples of reforms, but the most important is that of Sweden.

That country has brought up the broader known "welfare state". The needed tax burden to finance it took Brazilian proportions. And it worked for many decades.

However, over that period they were emerging signs that not everything was going well in the country. The incentive to work deteriorated to the extent that the "nanny state" became the provider of most of the needs of citizens; and took possession of almost all of the income of people who made up a relatively low value for the average of the country's income. That all changed, even partially, with the defeat of the Swedish socialists in elections to the Congress.

We are neither English nor Swedish; we have this passion for thoughtless dream, this unwavering faith that there are "free lunches". Because of this and the fact that the adjustment is necessary, there is no escaping from the increased taxes as the main instrument hit the economy.

It won’t be a little nor will occur quickly. It is estimated that two thirds of the necessary increase in the primary surplus will come from tax increases, either directly or by eliminating tax vices granted to a large number of sectors and companies in the country.

Cutting costs is more difficult, not only because the budget is hard, but also because new expenses were created in the last three governments. These expenses are either very difficult to control, such as the myriad of social nature programs, like others, spanning the years ahead. An example is the extension of the grace period for the payment by BNDES of resource transfers from the National Treasury. The renegotiation of the principal of a debt of R$ 194 billion of the Bank with the Treasury will allow these resources only will be paid in 2040.

There is no way, therefore, to have illusions about a reduction in the tax burden in the coming years. There are not even prospects to stabilize it.

This conclusion stems from the fact that the economy would need to reverse, at once, the accelerated growth trajectory that would allow increasing revenues by tax base increasing – it means, with the same rates of existing taxes today.

There is consensus among experts that the economic recovery will be slow; the room for spending cuts, with the current configuration of state functions, is small; the adjustment is inevitable to allow the resumed growth later. Unfortunately, with these assumptions, we can not escape the conclusion that there is increased tax burden on the horizon. With all the harm it will bring to the Brazilian society.

Text: Roberto Fendt

Source: Diário do Comércio

Version: Grazielle Segeti

 

 
   

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