PORTO ALEGRE, RS – Dilma Rousseff’s government announced this week that it intends to reintroduce a tax on financial transactions -CPMF- for the next four years. Her government will also freeze the salaries of federal workers for seven months and cut spending on social programs such as Minha Casa Minha Vida (My Home my Life), by almost 30%. Some of the social programs that will experience cuts include many aimed at the poorest families in the country.
The measures are part of a new stage of the package of fiscal adjustment -aka Austerity- that aims to supposedly end the deficit of 35 billion reais in the 2016 budget and to transform it into a surplus of 60,4 billion. Of course this is a lie. Only the deficit on the social security system reaches 80 billion reais and similar deficits exist in other areas.
The announcement issued by the ministers Joaquim Levy and Nelson Barbosa, who held emergency meetings with Rousseff last week, took place after the Standard & Poor’s rating agency downgraded Brazil’s credit, designating the country’s bonds as junk. This announcement triggered a political and economic earthquake in the country.
There is a justified fear that other agencies follow-up on S&P’s decision in the coming days. The imminence of the deficit for next year was a decisive factor for the decision of S&P. The consequences, as usual, will now be paid by the citizens.
The new tax, which will assess a 0.2% on all financial transactions carried out in Brazil, needs to be approved by Congress. If approved, by deputies and senators, it will go only to pay Social Security and not Healthcare or any other government program. The same scenario was seen in Brazil between 1997 and 2007. The government says it will raise some 32 billion reais, or 8 billion euros, according to estimates of the economic team led by Finance Minister, Joaquim Levy.
In Congress, the measure is set to face the challenge of obtaining the support of at least 308 votes. According to the president of Congress, Eduardo Cunha, who is now being investigated in a corruption case, “the government has little solid parliamentary support, the issue is controversial in itself.”
Cunha also said he believes the plan presented by the economic team are nothing else than “pseudo cuts” because many of the measures depend on the approval of the legislature. In fact, of the 16 alternative cuts and increased revenues presented as a solution to the crisis, 15 need to be analyzed by Congress. The only measure that will not pass the scrutiny of Congress is the reduction of 39-29 ministries.
So over the next few days, representatives of the Executive will begin a series of talks with parliamentarians in order to achieve the necessary support for the approval of the resurrection of the tax. The president began already lobbying some representatives at a dinner on Monday, to talk with the governors of the allied parties. She solicited their help to convince parliamentarians.
When the tax was abolished in 2007, the CPMF was intended primarily for Health and Social Security. The value was 0.38% on bank movements. Now it will be 0.2%. In other words, for every financial transaction of a 1000 reais, 2 will fall directly into government coffers. The decision of the return of this tax, as Levy explained, responds to an idea that it is the most “democratic one” as it encompasses the whole of society, without overloading any “social layer”.
Social media exploded after the announcement of the new taxation measure and the cuts on social programs. Brazilians ask the government why haven’t they cut expenses on luxury trips abroad, government propaganda, government credit cards and many bureaucratic positions that have no place in government.
Faced with all major taxes, the extension of the validity of the law of the CPMF would be the least challenging in the economy, with less impact on revenues and distributed more equitably on all sectors,” said Minister Levy. He added that Brazilian people pay less taxes than any member of the OCDE.
Brazilians responded to Levy’s statement by saying that they want the same comparison to be made when discussing education, security and healthcare and compare the conditions for those issues in their country with that of nations like Canada, Norway and Germany, respectively.
Former soccer star, Romario, who is now a congressman for the state of Rio de Janeiro, explains that the tax seeks to reach all financial transactions done through a bank including but not limited to withdrawals, transfers, payments on credit and debit card and bill payments.
According to government accounts, only in 2014, the social security program had a deficit of 58 billion reais, an amount that now grown to 80 billion reais. It is expected that next year the deficit in this program alone will reach 117 billion reais, or 29 billion euros in 2016.
Regarding the freeze on the salaries of federal workers, the goal is to save about 7 billion reais. The government will have to renegotiate with workers new proposals for adjustment that had already been submitted for a period of four years.
For next year, the estimate was that the increase came to 10.5% starting in January, slightly more than inflation which has now befallen the country. According to Minister Barbosa, to achieve the intended savings, it is necessary to extend the deadline until August.
About Minha Casa Minha Vida, a showcase program of the Worker’s Party (PT), its funds will be cut by 4,8 billion reais, some 1,2 billion euros, almost 30% of what was planned for 2016.