Brazilian assets plummeted on Wednesday afternoon (27), with investors reacting negatively to the news released in the press that the government may announce, within the package of fiscal measures that have been awaited for weeks, the Income Tax exemption for those who earn up to R$5,000 per month.
Article published by the newspaper “O Globo” around 1:45 pm states that the Minister of Finance, Fernando Haddad, will make a statement on Wednesday night to explain the spending package and announce the exemption. A government source confirmed to Reuters It is expected that Haddad will speak about the topic in his speech.
The prevailing expectation until then was that the package would focus on expense containment measures, as announced by the economic team.
The Presidency announced the call of the National Radio and Television Network for the minister’s speech, lasting seven minutes and 18 seconds, at 8:30 pm today.
Following the news, after 1:45 pm the real and the Ibovespa plummeted, while future interest rates soared, in the markets’ first negative reaction to the possible income tax exemption.
READ MORE: JPMorgan downgrades Brazil stocks due to rising fiscal risks
At 4:20 pm, the dollar in cash rose 1.94%, to 5.9209 reais, the Ibovespa fell 1.47%, to 128,008.41 points. At the end of trading, the dollar had appreciated by 1.81% at R$5.9135. This is the highest closing nominal value for the US currency. And Ibovespa, down 1.45% to 128,042.86 points. Earlier, the DI rate for January 2027 — one of the most liquid — was at 13.675%, an increase of 35 basis points compared to the previous adjustment.
Until the announcement, future rates and the real were already under pressure, according to a professional interviewed by Reutersdue to expectations before the release of the package, amid fears that it could be delayed until next week.
With the news about the exemption – not yet officially confirmed – assets plummeted, even with the information that Haddad will give details about the package at night.
Lula seeks income tax exemption along with spending cuts
According to sources heard by BloombergPresident Luiz Inácio Lula da Silva wants to present a plan to correct the Income Tax table along with cuts in public spending, as investors are increasingly concerned about the country’s fiscal policy.
Lula asked his economic team to define a proposal for his long-standing promise to exempt workers with monthly salaries of up to R$5,000 from paying income tax, according to two officials with knowledge of the matter.
This request is one of the reasons why Brazil’s public spending reductions have not yet been revealed, given that the president wants these cuts to be presented alongside a finalized strategy for tax relief for poorer workers. The economic team is resisting Lula’s appeal, officials said, requesting anonymity because the debate is not public.
In addition to the statement, Finance Minister Fernando Haddad plans to detail the fiscal package at a press conference on Thursday morning (28), two people said, warning that plans could still change.
The government initially expected to announce the cuts early this month after local elections, and the delay is making investors nervous.
Marinho says tax package will include taxation of the super-rich
The Minister of Labor, Luiz Marinho, said that the fiscal package that will be announced on Wednesday night (27) by the Minister of Finance, Fernando Haddad, will also include the taxation of the super-rich in addition to the income tax exemption for people who earn salaries of up to 5 thousand reais.
At a press conference in Brasília about the numbers from the General Register of Employed and Unemployed People (Caged) released earlier, Marinho also stated that the content of the package that will be announced by Haddad in an address to the nation on radio and TV will be “completely different” of what was being aired.
Asked by journalists whether the IR exemption for salaries of up to 5 thousand reais will be in the tax package, Marinho replied: “(It) will be everything. Super salaries, taxes for the super rich, everything is coming. Complete package.”
Without detailing how the measures will be implemented, the Labor leader said that it will not be a “pure and simple” cost-cutting package and that no changes will be made to the rules for granting unemployment insurance.
*With information from Reuters and Bloomberg
