Brazilian Treasury Minister Fernando Haddad addressed the nation Nov. 27 (after markets had closed) to outline the government’s proposed package of spending cuts, long-demanded by the financiers, domestic and international. The core of the 13 measures proposed is to limit the rate of increase in the minimum wage, a measure which automatically lowers most social security benefits because their rate of increase is tied to that of the minimum wage; tighten conditions for military pensions; raise the bar on access to the government’s wage bonus for the poor; plus various other spending caps. Haddad estimated the measures would cut government spending by 70 billion reais (some US$11.8 billion) over the next two years.
To ease the political impact of such measures, Haddad announced the government’s proposed tax reform in the same speech. That reform proposes to reduce or eliminate altogether the income taxes paid by poorer Brazilians. Currently, people earning up to R$2,640 per month are exempted; the government proposes to extend the exemption to those earning up to R$5,000 monthly, a measure which would benefit as many as 36 million people, according to O Globo’s Valor Econômico daily. The government proposes to cover the income lost from that by raising taxes on the wealthy.
