Brazil plans to cut tax breaks, curb education spending in fiscal package, say sources

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By Bernardo Caram and Lisandra Paraguassu

BRASILIA (Reuters) -Brazil’s government is negotiating a package of fiscal measures with congressional leaders that includes cuts to tax exemptions and limits on the growth of transfers to an education fund, according to sources familiar with the talks.

After initially signaling the measures would be unveiled on Tuesday, Finance Minister Fernando Haddad said they would be disclosed only after further discussions with party leaders on Sunday.

First reported by local newspaper Valor Economico and confirmed by three government sources who requested anonymity, the package is being prepared as an alternative to the controversial hike in the financial transactions tax (IOF) announced last week, which drew broad backlash from lawmakers and business sectors.

The plan focuses heavily on reducing tax benefits, a longstanding target of President Luiz Inacio Lula da Silva’s leftist administration, said three sources.

His economic team often criticizes the volume of tax exemptions that weaken public revenues, though previous attempts to roll them back have seen limited success in Congress. That includes a payroll tax break for companies, which remains in place without due compensation.

One of the sources said the new package includes a proposed constitutional amendment that would establish rules to curb growth in transfers to the Fund for the Development of Basic Education.

A similar initiative in last year’s fiscal package was watered down by Congress, which blocked efforts to redirect more of the fund’s resources to full-time education spending.

The new measures aim to create fiscal space for the government to revise the recent IOF tax decree, which increased rates on a range of credit, foreign exchange, and pension transactions.

(Reporting by Bernardo Caram and Lisandra Paraguassu, writing by Marcela Ayres; Editing by Sharon Singleton)