Brazil's New Tax Plan: Boosting Middle Class Income with Fiscal Balance

Brazil's government plans to exempt monthly incomes up to 5,000 reais from tax, offset by new levies on high-earners and overseas dividends. President Lula's initiative aims to boost middle-class disposable income and promote tax justice, but the proposal's path remains unclear as it awaits congressional approval.

Brazil's government unveiled a pivotal tax exemption plan on Tuesday, targeting individuals earning up to 5,000 reais monthly. This move, designed to be fiscally neutral, will be offset by imposing new taxes on high earners and foreign profit remittances. The proposal, a cornerstone of President Lula's campaign, aims to regain waning public approval.

The scheme arrives as part of a broader push by Lula's administration to enhance middle-class income through measures like payroll credit systems and relaxed rules on severance fund disbursements. Economic Policy Secretary Guilherme Mello emphasized that such initiatives could foster growth without igniting inflationary pressures, countering concerns linked to the central bank's rate hikes.

Sparking debate within Congress, the plan faces challenges due to its potential impact on powerful lobbying entities. With key fiscal changes pending approval by lawmakers, the tax strategy's future remains uncertain, though it signals a major shift in Brazil's approach to income distribution and economic stability.

(With inputs from agencies.)