The escalation of the tax burden


Source: O Estado de S. Paulo, 23/08/2007

On the same day that it was revealed that the tax burden went from 31,86% of GDP in 2002 to 34,23% in 2006, the Minister of Finance, Guido Mantega - in the face of the question from the State journalist about whether The government was considering fiscal adjustment measures to prevent the effects of the international financial crisis -, replied that a retraction in public spending and investment would lead to a slowdown in economic activity and commented that this would be “precisely what should not be done”.

This is a primary developmental reasoning that does not take into account that reducing the tax burden has the effect not only of increasing the investment capacity of the private sector, but also of the domestic demand and the competitiveness of Brazilian exporters in the international market. But it seems that the Minister of Finance wants to preserve the sad tendency of taxes on products to participate with 16,2% in the formation of the GDP, seeming to ignore that a relief of the tax burden would allow an increase in the collection of these taxes.

The data released by the Federal Revenue are really frightening: for an increase in the tax burden of 2,37 percentage points (pp), the federal government contributed 1,67 pp; state governments, with 0,62 pp; and municipal governments, with 0,08 pp. This signals an increasing concentration of powers (but not achievements) in the federal government.

The Social Security budget, which in 2002 represented 11,8% of GDP, increased this participation to 13,37% in 2006, knowing that, without a courageous pension reform, this participation will reach an unbearable point.

On the same day that the IRS released data on the tax burden, it also made public the collection of the federal government in July, which, in nominal value, grew 13,91% in the first seven months of the year. Assuming that this growth will continue until the end of the year in all units of the Federation and that GDP will grow 5% this year, in 2007 the tax burden will reach 37,1% of GDP. The Brazilian tax system leads revenue to grow twice as much as GDP, which has an unbearable effect on the economy.

No tax reform can do without imposing a limit to the increase in the tax burden and eliminating taxes or uneconomic contributions, such as the CPMF, which in 2006 represented 1,38% of GDP.