Analysis: The government's need for revenue contributed to the reduction in the IOF

The federal government's retreat from the measure that would increase the Tax on Financial Transactions (IOF) for investment funds abroad has weakened the position of the Ministry of Finance, according to Fabio Graner, chief analyst at JOTA, in an interview with WW this Friday (23)

According to Graner, the government's need for revenue was a determining factor in the initial decision to increase taxation, which ended up being reversed after a strong negative reaction from the financial market.

Lack of transparency and prior discussion

The analyst highlighted that there was a lack of transparency and prior discussion on the topic, even within the government itself. “This topic, for example, of the IOF on investment funds, remittance of investment funds was not clarified, it was not discussed in advance,” stated Graner.

He highlighted that, in previous instances, when this measure was considered, there was a more careful assessment of the possible negative effects, which did not occur this time.

Search for fiscal balance

The decision to increase the IOF was related to the government's need to balance public accounts. Graner noted that the bimonthly revenue and expenditure assessment report was the most realistic since the beginning of the current administration, removing revenue projections that were considered unlikely.

“They took out of account a series of revenues that they forced a little there, the collection from negotiations within the scope of CARF, that administrative court, tax transactions within the scope of revenue, none of this was generating any revenue and they maintained high volumes”, he explained.

Political and economic impact

The reversal of the measure, although necessary due to the strong negative reaction, caused political wear and tear for the Ministry of Finance. Graner argued that the victory obtained by convincing the president to make a R$31 billion spending cut was overshadowed by this episode.

“This effort, this great political victory that he would have had and that could have helped a lot in this effort to improve the climate in the economy, increase the value of the real against the dollar, help in the effort to reduce inflation, has been destroyed,” concluded the analyst, highlighting the negative impact of this “misstep” by the ministry in conducting economic policy.