Speaking to journalists at the "Macro em Pauta" event hosted by the bank in São Paulo, the economists suggested higher taxation on sports betting, implementing the IOF on cryptocurrency transactions, and increasing budget projections for dividend revenues, which they believe are currently underestimated.
After partially retracting the IOF plan last week, Finance Minister Fernando Haddad indicated that the rollback would have an approximate impact of R$ 6 billion (US$1.05bn) on government revenue—R$ 2 billion (US$353m) this year and R$ 4 billion (US$705m) in 2026—the same estimate presented by Itaú.
On Monday (26), Haddad added that the government would have until the end of this week to decide how to compensate for the revenue shortfall, while the Executive Secretary of the Ministry of Finance, Dario Durigan, stated on Wednesday that the ministry would "delve into" alternatives to the IOF decree.
"Many people have become accustomed to sports betting; I don't see why they shouldn't be taxed like cigarettes or alcoholic beverages. It could be an important source of revenue," said Itaú's chief economist, Mário Mesquita, at the event.
"The IOF increase excluded cryptocurrencies. It doesn't seem to make sense to leave this segment exempt from IOF taxation, given that others will be taxed. Ideally, there would be no IOF," he added.
Economist Pedro Schneider, in turn, highlighted Mesquita's suggestions as a return to an "agenda of reducing distortions and inefficiencies" and also indicated that the government could raise budget forecasts for revenues from dividends and oil auctions.
The IOF rate increases were initially announced by the government on Thursday afternoon but were partially reversed by the economic team hours later due to negative market reactions. Central Bank President Gabriel Galípolo also opposed the measure.
According to Itaú economists, the negative reaction from investors stems from the fact that "abrupt changes," such as the IOF increase, generate distrust. They warned that uncertainty about the taxation of operations could inhibit capital inflows into the country.
"When doubts are created about capital outflows, you inhibit capital inflows, so it's quite counterproductive," said Mesquita.
Schneider added that any strategy to increase taxation has "its limits," as it's impossible to predict how sectors affected by higher taxes will react and behave, which could impact final revenue.
The government announced the IOF increases alongside a plan to cut R$ 31.3 billion (US$5.5bn) in ministry expenses this year to meet the zero primary deficit target and fiscal framework rules. With these fiscal objectives, the Executive aims to stabilize public debt growth.
At the event, however, Itaú economists presented estimates that, under the current framework, debt growth is expected to continue. They advocated for more measures to slow public spending growth and stated that a lower debt level than the current one is necessary.
"Stabilizing the debt is not enough for Brazil to regain investment-grade status and to work with a lower cost of capital," said Mesquita. "A higher potential GDP helps because it influences fiscal outcomes, but to achieve investment grade, a lower debt level is necessary."
Source: GMB
