The Minister of Finance, Fernando Haddad, presented details of the federal government’s economic package on Wednesday night (27). The measures do not come into force immediately and the government must still detail how the package will be discussed and approved in Congress.
No seven-minute speech on national televisionHaddad confirmed the Income Tax exemption for those earning up to R$5,000 and the tax increase for those earning more than R$50,000.
READ MORE: Full text of Haddad’s statement
Anticipated by the press on Wednesday afternoon, the measure, according to sources interviewed by Bloomberg, was a request from the president Luiz Inácio Lula da Silva for the spending cuts to be presented alongside a finalized strategy for tax relief for poorer workers.
The information generated a market reaction this Wednesday and led the dollar to close at the highest nominal value in history.
See below the measures announced by Haddad on Wednesday night:
Income reform
- Income Tax exemption range will increase from R$2,259.20 to R$5,000
- To compensate for this drop in revenue, the government will increase taxes for those earning over R$50,000
In his speech, Haddad did not say when the change would come into force, how it would be processed in Congress or how much Income Tax would increase for salaries of more than R$50,000.
He only said that “those who have an income of more than R$50 thousand per month you will pay a little more. All without excess and respecting established international standards.”
READ MORE: Brazil is one of the only countries that does not tax dividends
In the speech, there is no mention of whether the rate from R$5,000 will be 27.5% or not, nor whether the automatic exemption of R$564.80 will remain in force.
However, in comparison with the current table, exempting income of up to R$5,000 from tax should bring savings of R$479 per month for those earning above this level:
| Wage | IRPF rate | Tax |
| Up to R$2,259.20 | I was already exempt | R$ 0,00 |
| From R$2,259.20 to R$2,826.65 | 7,5% | + R$ 42,55 |
| From R$2,826.66 to R$3,751.05 | 15% | + R$ 138,65 |
| From R$3,751.06 to R$4,664.68 | 22,5% | + R$ 205,57 |
| From R$ 4,664.68 to R$ 5,000.00 | 27,5% | + R$ 92,21 |
READ MORE: See how much more you would earn with the IR exemption announced by Haddad
No tax impact
According to the minister, increasing the exemption range will be offset by higher taxation of the highest income range. He stated that the measure, together with the tax reform, means a correction of “a large part of the unacceptable tax injustice that deepened social inequality in our country”.
The other measures announced on Wednesday night include improving control mechanisms to combat “fraud and distortions” that “delay service to those who need it most”.
See below the announced changes that, together, should save the public coffers R$70 billion in two years:
Minimum wage
- Increase will remain above inflation, but within the fiscal framework
Haddad did not detail changes in the annual adjustment of the minimum wage, but guaranteed that there will be no real gain. The tax framework limit is 2.5% per year.
“The minimum wage will continue to rise above inflation, sustainably and within the new fiscal rule.”
Fernando Haddad, Minister of Finance
Salary bonus
- The change is more restrictive: the bonus will only be guaranteed for those earning up to R$2,640.
- Currently, the benefit extends to salaries of R$2,824.
According to the minister, “this amount (R$ 2,640) will be adjusted for inflation in the coming years and will become permanent when it corresponds to one and a half minimum wages”.
Super Salaries
- Subject all public agents to the constitutional ceiling
“We will correct excesses and ensure that all public agents are subject to the constitutional ceiling,” said Haddad, without detailing what measures will be taken.
Parliamentary amendments
- Global amount will grow below the limit of tax rules
- 50% of amendments from Congressional committees must go to public health
Military pension
- establish a minimum age for soldiers to join the reserves
- limit pension transfer
In the case of military retirements, the minister announced at least two measures, but said that “other adjustments” will still be made. He also said that “these are changes
fair and necessary”.
