Lula strongly devalues ​​the Brazilian real after announcing that he will reduce taxes on low incomes and tax the richest

The announcement of the Minister of Finance Fernando Haddad The fact that Brazil will reduce taxes on the lowest incomes and establish a minimum rate on the richest led the real to unprecedented weakness against the dollar.

Haddad announced this Wednesday that the personal income tax (Personal Income Tax) exemption band will be corrected to 5,000 reais (about 800 euros) to benefit 26 million people. Ten million taxpayers will be exempt and another 16 million will pay less.

The person responsible for the Brazilian economy, the ninth largest GDP in the world, He also revealed that his government will create a minimum tax of 10% for those who earn more than 50,000 reais per month (about 8,000 euros), which will affect 100,000 people.

The proposal, announced by Haddad to the members of the parliamentary group of the Workers’ Party (PT), would only come into force from 2026.

The markets already received the announcements with skepticism in the previous hours and the real devalued until reaching 6.11 per dollar this Friday, a parity never before seen in the 30 years of life of the Brazilian currency. Before the announcements, the real was trading at 5.89.

“The news that the income tax exemption for those earning up to 5,000 reais would be included in the package of measures made markets distrustful of the source of funds to pay for this onerous measure, and has caused investors to rush for the dollar,” “O Globo” highlighted.

At the same time, the economy gave good news: the unemployment rate, at 6.2%, is at its lowest level since it began to be measured.

Local economic analysts expect more details in the coming days, since they generally doubt the Government’s ability to meet the 70 billion reais (11.2 billion euros) of savings in the next two years promised by the head of the Treasury.

Among the measures announced by Haddad also include the restriction of the payment of salary bonuses to workers who earn up to 1.5 times the minimum wage, changes in military pension rules and the prohibition of tax benefits in case of primary deficit.

Haddad is pointed out as a potential candidate to succeed Luiz Inacio Lula da Silva in the 2026 elections. The minister already lost the 2018 elections against Jair Bolsonaro, but he is one of the senior officials best considered by the president, who by the date of those elections will already be 81 years old. Lula, three times president, did not categorically rule out a new nomination, although this seems much less likely today than it did a while ago.