Brazilian government raises GDP growth estimates to 3.2% by 2023 as it pushes green policies and tax reform  

Brazil’s Finance Minister provided on Monday a figure higher than the Central Bank’s projection and said that the country’s economy is growing at a faster pace than expected.

During a speech in Brasilia, Finance Minister Fernando Haddad said that the Brazilian economy grew by 3.3% in the second quarter of 2023, signaling an acceleration from the first quarter, when it increased by 2.9%. The minister noted that the recovery of domestic demand, increased exports, and foreign direct investment were contributing factors.

Haddad added that the government is taking measures to boost growth such as reducing taxes, increasing investment in infrastructure, and improving the business climate.

The government’s forecasts are more optimistic than those of international agencies. The International Monetary Fund (IMF) estimates that the country will grow by 1.5% in 2023, while the World Bank forecasts growth of 2.2%.

However, the projections are subject to risks such as Russia’s war in Ukraine and political uncertainty.

Meanwhile, the government is moving forward with an agenda that includes reversing the policies of former president Jair Bolsonaro. The Interministerial Commission on Climate Change (CIM) of Luiz Inácio Lula Da Silva’s administration announced that it will resume the climate goals set in 2015, which are more ambitious than those of Bolsonaro’s tenure. In addition, the government aims to end Bolsonarist policies that jeopardized the preservation of protected areas, authorized an increase in oil and gas production, and reduced spending on renewable energies.

Additionally, the country is set to issue green bonds this month. According to statements by the Minister of Finance and the Secretary of the National Treasury, the first bonds will amount to US$1 billion to finance sustainable investment projects.

Brazil’s economic transformation plan includes a tax reform that has already been approved by the Chamber of Deputies in July. The proposed bill, which still has to be approved by the Brazilian Senate, creates a unified Value Added Tax (VAT), which will replace the five consumption taxes that currently exist in Brazil. The new VAT will have a general rate of 22% but will be reduced to 0% for essential products.

The reform also lowers the corporate income tax rate from 25% to 23%. It also creates a new personal income tax which replaces the current one with a progressive rate ranging from 15% to 25%.

The bill includes initiatives to combat tax evasion, including the creation of a registry of commercial transactions and the reinforcement of tax audits.

If the reform receives the green light from the Upper House, it will enter into force in 2024.

Author: Marina Vanni