Analysis-Tax slump in outperforming Brazilian economy scrambles reform plans
By Marcela Ayres and Bernardo Caram
BRASILIA (Reuters) — Even as Brazil's economic growth blew past expectations in the first half of this year, tax revenue has tumbled, underscoring doubts about the central government's bold new fiscal targets and scrambling plans for an ambitious tax reform.
The contrast between stronger-than-expected growth and disappointing government revenue comes down largely to what is driving Brazil's recent outperformance. A bumper harvest to start 2023, followed by strong oil and mining output, have the economy on track to grow more than 3% this year, officials said, when most economists had forecast sub-1% growth in January.
However, Brazil's commodity exporters shoulder a lighter tax burden than retailers and heavy industry, effectively boosting gross domestic product (GDP) more than government revenue, according to Rafaela Vitoria, chief economist at Banco Inter.
«We don't expect a change in this dynamic. Tax collection in the second half (of 2023) will remain stagnant,» Vitoria said. «The GDP subject to taxation is not expected to rebound, especially in manufacturing and retail.»
Brazil's Finance Ministry expects much of this year's surprising growth to come from the relatively undertaxed farm sector, one ministry official confirmed, requesting anonymity to share internal calculations.
With the central government's revenue through June slipping 5% from a year earlier in real terms, the Finance Ministry widened its estimate for this year's primary deficit to 145 billion reais, or 1.4% of GDP. Now, the ministry is rushing out emergency measures to boost tax revenue by next year, when new fiscal rules require the government to erase that deficit.
The strategy has unsettled some people in the
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