Author: Eliana Cardoso

Source: Valor Econômico, 10/01/2008

King's word go back? In the realm of the “Pooode” Total Dolly. The proof is that Lula increased taxes, contrary to what he had promised. And even if some measures were necessary to cure the imbalances generated with the end of the CPMF, the package is lame. It does not specify expenditure cuts and depends on the approval of a provisional measure in Congress to change the CSLL. Once again, attempts are being made to resolve the Brazilian fiscal problem with bandages. Meanwhile, there is a growing perception that the tax burden is excessive.

More than the heavy load, it is the terrible tax structure that concerns us. The government's inefficiency, the lack of tax transparency and its complexity justify the perception that the tax burden is excessive, as the following three theses illustrate.

Thesis 1. We perceive our tax burden as heavy, because the government spends badly.

In comparison with the countries of the Organization for Economic Cooperation and Development (OECD), the tax burden in Brazil does not seem to be exaggerated. In Sweden and Denmark, taxes represent around 50% of GDP. See the table. Also in comparison with OECD countries, the growth of taxes in Brazil is not frightening. In the last 30 years, in Spain, Portugal and Turkey, for example, the tax burden has risen by more than 15 percentage points of GDP.

In general, countries with a high tax burden tend to grow more slowly. But that relationship is weak. Sweden, whose tax burden is the highest among developed countries, has had an excellent economic performance in the past 20 years. And South Korea has almost doubled its tax burden in the past 30 years, while growing above other countries. It all depends on how the government spends tax revenue. Infrastructure expenses, for example, promote investment and growth.

The perception that our tax burden is high stems from the government's low capacity to solve security problems and improve the quality of life. Unlike South Korea, Sweden or Norway, Brazil has not yet faced corruption, wasted public resources, excessive bureaucracy, inconsistency in economic policies, low integration between government agencies and a shortage of qualified personnel.

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The bad tax structure is what worries

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In 1982, in Australia, the Labor Party won the elections with the motto: "Running the State as a company". The goal was to achieve better government performance with the winning company management techniques. In Brazil, although the IRS has adopted the practice of electronic government with good results, public services have failed to observe the same pattern. A strategy for improving public spending will have to tackle so-called unproductive spending and, in particular, spending on social security benefits.

Thesis 2. Our tax burden becomes increasingly heavy, because taxes are not transparent.

In the work “Tax Salience and Tax Rates” (NBER Working Paper 12924, 2007), Amy Finkelstein argues that it is more difficult to increase transparent taxes, which require calculation by the consumer before payment. It supports the thesis with the following evidence: in the USA, road tolls, which use automatic electronic passes, are 20% to 40% higher than those charged on roads where the driver counts the money he delivers to the collector.

Partly because he needs to calculate the income tax due, the citizen is clearly aware of the part of his income that he must deliver to the government when making his declaration. That is why our income tax is less heavy than our indirect taxes. We pay, without realizing it, indirect taxes on the supermarket account, for example. In the USA, in contrast, the consumer reads the price of the product and the amount of tax added to the price on the invoice. The information gives transparency to the tax system.

In Brazil, tax evasion - evident in the non-issuance of invoices to the consumer - causes the government to often adopt the tax substitution system and cover the total value added taxes when the product leaves the factory (which it has also found means of circumventing the tax authorities). Lower, uniform rates would reduce tax evasion. But if the value of the tax is hidden in the price of the goods, the government finds it easier to increase rates.

Thesis 3. Our tax burden is even heavier than it looks, because taxes are complex.