By JOÃO CARLOS LOEBENS*
In tax expenditures, also called tax waivers, incentives or benefits, the government authorizes businesspeople to appropriate part or all of the taxes paid by consumers.
The market is putting pressure on the government to cut spending. So, what spending should be cut? We can group public spending into three main groups: primary spending, tax spending and interest spending. Which of these spending should be cut?
Primary expenditures refer to Health (SUS), Education (universities, schools), Social Security, Social Benefits (Unemployment Insurance), construction and maintenance of roads, among others, representing the most used and necessary public services for the lower-income population.
Tax expenditures refer to public resources, in the form of taxes, that the government authorizes to be kept by business owners. In practice, business owners collect taxes from consumers and pass them on to the government.
In tax expenditures, also called tax breaks, incentives or benefits, the government authorizes entrepreneurs to appropriate part or all of the taxes paid by consumers. Thus, these public expenditures could also be called business grants, and represent a public service that is used more by the high-income segment of the population.
Interest expenses are the amounts paid by the government as interest on public debt, amounts that the government borrows from the market, from people who have money to spare to lend or invest in debt securities. Interest payments are concentrated in a portion of the population with very high incomes. This portion of people with high incomes is, in practice, the so-called market.
Which of these expenses should be cut? Or is the market pressure for cuts in all three types of expenses?
Although we have the new fiscal framework, the pressure to cut spending originates from Constitutional Amendment 95/2016, called the Spending Cap, which actually results in spending cuts. Why wasn't the Constitutional Amendment called a “spending cut”? Cap is a more “acceptable” name than cut, but the name cap ended up hiding the cut at that time. In this sense, instead of calling the Constitutional Amendment the spending cap, it would be more appropriate to call it a spending cut, as is happening now.
In the Constitutional Amendment on the spending cap, which is actually a spending cut, which of the three groups of expenses mentioned above (primary expenses, tax expenses and interest expenses) were included in the cap/cut?
Normally, no one asks this question, because it seems like an absurd, unreasonable question. It is obvious that (all) expenses are included in the ceiling/cut! It should be obvious, but it is not. Only primary expenses were included in the ceiling/cut, precisely the public expenses most used and necessary for the low-income population.
High-income earners kept their tax expenditures (Business Grant) and interest expenses untouched. And how much does this public spending represent per year for this high-income segment of the population?
Value of tax expenditures: due to market pressure to cut spending (primary spending, obviously), contrary to the government program presented before the elections, the Ministry of Finance released, for the first time, the value of the Bolsa Empresário program planned for 2024: R$546 billion (tax expenditures, waivers, incentives or tax benefits). I choose the term Bolsa Empresário in accordance with the term Bolsa Família. Another alternative would be to change the name of Bolsa Família to Benefício Família, in accordance with the term Benefício Fiscal.
Interest expenses in 2023 were R$614 billion, a higher amount than expenses on health, education and social assistance combined.
Thus, adding government spending on Bolsa Empresário (R$546 billion) plus interest spending (R$614 billion), we arrive at R$1,1 trillion reais per year.
The market expects spending cuts of around R$50 billion per year. If the spending cuts demanded by the market were not applied to primary expenses and were applied to the Bolsa Empresário and interest expenses, it seems that it would be easier to achieve the goal.
In addition to the Bolsa Empresário and interest payments, it would be important to take into account the value of private diversion of public resources (tax evasion). Considering that the consumer pays the tax at the time of purchase, there are public resources (taxes) in the company's cash register. If this tax in the company's cash register is not collected by the State, it constitutes a diversion of public resources, called tax evasion (more details in the article “Public corruption versus private corruption”). The tax evasion meter estimates the value of private diversion of taxes at approximately R$600 billion per year, diversions that are also concentrated in a high-income segment of society, obviously for their own benefit.
In short: Bolsa Empresário (tax waiver) worth R$546 billion; debt interest worth R$614 billion; and tax evasion (private diversion of public funds) worth R$600 billion, totaling approximately R$1 trillion and 700 billion per year in public funds. This enormous amount is appropriated by a small portion of people with high incomes, normally called the economic elite, and who in practice are the market. Since money is power, they can also be called oligarchs.
The merry-go-round is this: in the Bolsa Empresário program, they appropriate R$546 billion, and in the private diversion of public resources (tax evasion) they appropriate another R$600 billion. They lend part of it to the government (which waived this revenue), and appropriate another R$614 billion in the form of interest paid by the public entity, with taxes paid by the others. An easy merry-go-round that is harmful to the country.
The R$50 billion in public spending cuts, instead of being cut from primary expenses that affect millions of people with lower incomes, could be cut from the R$1.700 billion reais (R$1,7 trillion) that are appropriated annually by the high-income portion of society, the market itself.
With this level of income concentration, it is difficult, if not impossible, for Brazil to grow.
*Joao Carlos Loebens He has a master's degree in administration from Unisinos and is a tax auditor for the State Revenue of Rio Grande do Sul.
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