Report on Brazil’s Income Tax Reform and its Contribution to Sustainable Development Goals

Introduction: A Legislative Step Towards Economic Equity

Brazil’s lower house of Congress has unanimously approved a significant tax reform bill, a key initiative of President Luiz Inácio Lula da Silva’s administration. The legislation aims to more than double the income tax exemption threshold to 5,000 reais ($940) per month. This measure is positioned as a critical step towards achieving greater tax justice and advancing several of the United Nations’ Sustainable Development Goals (SDGs), particularly those focused on reducing poverty and inequality.

Legislative Details and Process

The bill, which received unanimous support in the lower house, represents a major legislative victory for the current administration. Its progression and key features are outlined below:

1. Initial Approval: The bill passed unanimously in the lower house, indicating broad cross-party and public support.
2. Next Stage: The legislation now proceeds to the Senate for final approval.
3. Presidential Assent: Following Senate approval, the bill will be signed into law by President Lula.
4. Effective Date: The new tax structure is scheduled to come into effect on January 1, 2026.

To ensure fiscal responsibility, the government has proposed a measure to offset the anticipated loss in state revenue. This involves introducing a new minimum effective tax rate for high-income individuals, specifically targeting the wealthiest segment of the population to create a more balanced and progressive tax system.

Alignment with Sustainable Development Goals (SDGs)

The proposed tax reform directly addresses several core objectives of the 2030 Agenda for Sustainable Development. The emphasis on creating a fairer economic system for millions of Brazilians aligns the policy with the following goals:

• SDG 1: No Poverty: By increasing the disposable income of an estimated 15 million lower-income workers, the exemption provides direct financial relief. This measure is a direct intervention to alleviate poverty and improve the economic resilience of households, as a significant portion of the population earns near the proposed exemption level.
• SDG 10: Reduced Inequalities: The reform is fundamentally designed to reduce income inequality. It achieves this by lessening the tax burden on the poor and middle class while simultaneously introducing a new tax mechanism for the country’s 141,000 wealthiest individuals, who currently pay a disproportionately low effective tax rate. This progressive approach is a clear effort to create a more equitable distribution of the tax burden.
• SDG 8: Decent Work and Economic Growth: The policy is expected to stimulate the domestic economy. With more money in the hands of consumers, increased spending can drive demand, supporting local businesses and contributing to sustainable economic growth. It also enhances the value of work for millions by allowing them to retain a larger portion of their earnings.
• SDG 16: Peace, Justice and Strong Institutions: President Lula and supporters of the bill have framed it as a victory for “tax justice.” By reforming the fiscal system to be more equitable and accountable, the measure aims to strengthen public trust in state institutions and promote a more just and inclusive society.

Economic and Social Implications

Economic analysis suggests the reform will have a positive impact on the broader economy. According to Carla Beni, an economist at the Getulio Vargas Foundation, the increased disposable income will empower individuals to:

• Increase consumption of goods and services.
• Build personal savings.
• Pay off existing debts.

This infusion of capital into the household economy is expected to generate a positive multiplier effect. Socially, the policy addresses a long-standing campaign promise from multiple political parties, reflecting a broad societal consensus on the need to correct imbalances in the tax system. Data from Brazil’s national statistics agency, IGBE, indicates that in 2024, 90% of the population had a per capita household income below 4,040 reais, highlighting the extensive reach and potential impact of this reform.

Political Context and Future Outlook

The unanimous approval of the bill in a chamber where the president’s coalition lacks a majority underscores its widespread popularity. Political scientist Luciana Santana notes that the policy could provide a significant political victory for President Lula ahead of a potential reelection campaign. It serves as a tangible policy with a broad societal impact, fulfilling a key electoral promise made during the 2022 election by both major candidates. The successful passage of this reform is seen as a crucial step in the administration’s agenda to foster social justice and sustainable development in Brazil.

Analysis of Sustainable Development Goals in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

The article on Brazil’s tax reform directly addresses and connects to the following Sustainable Development Goals (SDGs):

• SDG 1: No Poverty – The policy aims to increase the disposable income of lower-earning individuals, which is a direct measure to alleviate financial hardship and prevent poverty. By allowing workers to keep more of their earnings, the government is providing a form of social and economic support.
• SDG 8: Decent Work and Economic Growth – The article mentions that the tax exemption will benefit “15 million Brazilian workers.” An economist quoted in the article suggests the extra income will lead to increased spending, saving, or debt repayment, which can stimulate the broader economy. This contributes to economic growth and improves the financial well-being of workers.
• SDG 10: Reduced Inequalities – This is the most prominent SDG in the article. The policy is explicitly framed as a “fight against inequality” and a move towards “tax justice.” It aims to reduce the economic gap by easing the tax burden on the lower and middle classes while increasing taxes on the wealthiest individuals, directly addressing income disparity.

2. What specific targets under those SDGs can be identified based on the article’s content?

Based on the article’s content, the following specific SDG targets can be identified:

1. Under SDG 1: No Poverty
   • Target 1.2: “By 2030, reduce at least by half the proportion of men, women and children of all ages living in poverty in all its dimensions according to national definitions.” The article states that the tax exemption will benefit 15 million workers, many of whom fall into the lower-income bracket (90% of the population earned less than 4040 reais in 2024). Increasing their take-home pay directly contributes to poverty reduction.
2. Under SDG 8: Decent Work and Economic Growth
   • Target 8.5: “By 2030, achieve full and productive employment and decent work for all women and men… and equal pay for work of equal value.” While not creating jobs directly, the policy enhances the “decent work” aspect by increasing the net income of millions of workers, making their employment more financially sustainable.
3. Under SDG 10: Reduced Inequalities
   • Target 10.1: “By 2030, progressively achieve and sustain income growth of the bottom 40 per cent of the population at a rate higher than the national average.” The policy specifically targets individuals earning up to 5,000 reais, a group that includes the bottom 40% of earners, thereby directly increasing their disposable income.
   • Target 10.4: “Adopt policies, especially fiscal, wage and social protection policies, and progressively achieve greater equality.” The tax reform is a clear example of a fiscal policy designed to achieve greater equality. The article highlights this by describing it as a measure to correct “imbalances in which many of the rich pay proportionately less tax than the poor.”

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

Yes, the article mentions several specific quantitative and qualitative indicators that can be used to measure progress:

• Number of beneficiaries: The article explicitly states the policy will benefit “15 million Brazilian workers.” This is a direct indicator of the scale of the intervention aimed at reducing poverty and inequality (relevant to Targets 1.2 and 10.1).
• Income threshold for tax exemption: The new exemption level of “up to 5,000 reais ($940) a month” is a key indicator. Progress can be measured by tracking the percentage of the workforce that falls below this threshold and is therefore exempt from income tax.
• Tax rates for high-income individuals: The introduction of a “minimum effective tax rate for high-income individuals” who earn over 600,000 reais is a specific policy indicator for Target 10.4. The article notes that this targets “141,000 wealthy individuals” who currently pay an average effective rate of “2.5%.” Tracking the change in this effective tax rate for the wealthy is a clear measure of the policy’s impact on fiscal equality.
• Income distribution data: The article references data from Brazil’s national statistics agency, IGBE, stating that “90% of the country’s population earned less than 4040 reais in 2024.” This serves as a baseline indicator. Future IGBE reports can be used to measure changes in income distribution and the income growth of the bottom percentiles of the population (relevant to Target 10.1).

4. Summary Table of SDGs, Targets, and Indicators

Source: abcnews.go.com