Governor of São Paulo expresses support for 95% of the tax reform

One of the main names of resistance to tax reform in recent days, the governor of São Paulo, Tarcísio de Freitas, has reduced opposition to the proposal and said he agrees with “95% of what is being discussed”. The governor made the statement after meeting with the Minister of Finance, Fernando Haddad, this Wednesday (5).

The governor of Amazonas, Wilson Lima, also participated in the meeting. On leaving, Freitas said he still has disagreements on “specific issues” with the federal government and claimed to be a “partner” in approving the reform.

“The backbone of the proposal – broad-based taxation, dual VAT (Value Added Tax), collection at destination, federative transition – has the agreement. He always had the agreement of São Paulo. What we have always pondered were specific issues. We agree with 95% of the reform”, declared the governor accompanied by Haddad.

Freitas reported that he asked the minister for more representation for the states in the future Federative Council, the body that will decide fiscal and tax policies. “If I have looser governance (in the Federative Council), I need more revenue in the hands of the state. From the moment I improve the governance of the Federative Council, I can have something more ‘algorithmizable’”, he declared.

The governor also suggested a Compensation Chamber to cover any revenue shortfalls for the states, but said he was willing for the state to lose revenue in the short term after the approval of the proposal. He defended the automatic collection and allocation of tax credits (compensation for overpaid taxes), as in some countries of the European Union.

The text expected to be voted on this week by the Chamber establishes two funds with Union resources to cover losses in state revenue. The first is the Benefit Compensation Fund, which will guarantee tax incentives granted by states until 2032. The second is the Regional Development Fund, which will encourage development in lower-income regions and will receive annual contributions of R$ 40 billion from 2033.

In recent days, the governor of São Paulo has been advocating a different sharing of the Regional Development Fund. Instead of privileging states with lower income per capitaas recently approved by the National Committee of Secretaries of Finance, Finance, Revenue or Taxation of the States and the Federal District (Comsefaz), Freitas suggested the states with the highest number of Bolsa Família beneficiaries, which would favor São Paulo, which has the highest country’s population.

Collaboration

This was the first meeting between Haddad and Freitas since the beginning of the year. In 2022, the two contested the second round of elections for the government of São Paulo, won by Freitas. The finance minister thanked the political opponent for his visit and said that the federal government has acted in a technical way to insert possible changes in the text.

“It’s not news that Governor Tarcísio has spoken out in favor of the reform, even knowing that São Paulo will have a short-term challenge, above all what it is willing to face, putting national interest above regional and party issues, which is very important thinking about the future of Brazil”, said Haddad.

The minister again said that the government is working to approve the tax reform with as many votes as possible. As it is a proposed amendment to the Constitution (PEC), the text requires 308 votes to be approved in the plenary of the Chamber.

“We are not here aiming at the number of votes needed to approve (the tax reform). We want to exceed the minimum number to convey the idea, just as it happened with the fiscal framework, that it is a country project that is ongoing, that it is something that is for future generations. No one is thinking about the very short term in terms of gains or losses,” said Haddad.