IPEA: Tax reform could add 2.39% to Brazil’s GDP by 2032

A study by the Institute for Applied Economic Research (Ipea) concluded that the approval of the tax reform could add 2.39% to Brazil’s Gross Domestic Product by 2032 — GDP is the sum of all final goods and services produced by the country in a year . O lifting simulated the economic, regional and sectoral impacts of the reform proposals on consumption that were under discussion in the National Congress: PEC 45/2019 and PEC 110/2029.

Author of the study, João Maria de Oliveira estimated the economic impacts of the two PECs and the preliminary version of the substitute for PEC 45, presented by deputy Aguinaldo Ribeiro (PP-PB) on June 22nd. The text underwent changes, but was voted and approved by the Chamber of Deputies on July 7th.

In one of the scenarios, with the initial version of PEC 45, the Brazilian economy would grow 5.75% until 2036 (the year in which the transition period proposed by the original text would end). With the initial version of PEC 110, whose adaptation would end in 2032, GDP could rise 4.48% by then.

When dealing specifically with the replacement of PEC 45, the GDP growth potential is 2.39% in the accumulated until 2032, when the future model would come into effect. According to Oliveira, the results allow us to state that the tax reform will produce positive effects. “Changes in taxes on consumption tend to lessen the effects on relative prices than the current system, penalizing industrial sectors less”.

The specialist attributes the smaller gains in GDP, productivity and employment estimated from the replacement of PEC 45, in comparison with the others analyzed by the study, to the maintenance of some special regimes and exceptions. And, to a lesser extent, at the highest effective tax rate. In other words, this means that the version ratified by federal deputies provides for lower taxation on products and services related to health, education, transport, agricultural products, personal hygiene items, as well as special regimes for fuel, the financial sector and tourism, for example.

“Warming Up the Economic Model”

Professor of General Theory of the State at the Faculty of Law of the University of São Paulo (USP), lawyer Arnaldo Sampaio says that the survey is one more to estimate the progress of the Brazilian economy as a result of the simplification of the tax system.

“There are several studies that point out that this tax reform would result in the heating up of the economic model, resulting in energy savings and an increase in our Gross Domestic Product. The tax reform tends, naturally, to reduce the tax burden, freeing up resources of the productive sector, which would result and benefit Brazil as a whole”, he believes.

Procedure

To become effective, the tax reform needs the endorsement of the senators, who will begin to analyze it from August. According to the leader of the União Brasil in the Senate, Efraim Filho (PB), some points of the text that were included in the final stretch of the procedure in the Chamber will receive special attention in the Constitution and Justice Commission (CCJ) and in the Economic Affairs Commission, the CAE .

“We have to be very attentive to these changes that came at the last minute, because you can’t even think about voting for something that means an increase in the tax burden and a tax increase. The tax reform must come to improve the lives of those who produce, who pays the tax. It’s not to improve the life of those who collect the tax, nor to increase government revenue,” he said.

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