Reducing salaries boosts the economy and creates jobs

Reducing salaries boosts the economy and creates jobs

An important Brazilian policy completed more than 10 years ago in 2021: payroll tax relief for many economic sectors that employ many people, such as civil construction, textiles, call centres, technology and transportation.

In total, 56 regions have the advantage of collecting lower employee payroll taxes. Instead of a Social Security rate of 20%, these companies contribute between 1% and 4.5% of revenue.

This measure already affects about 6 million formal employees. It was necessary to preserve jobs in times of crisis. So much so that other countries have also adopted this strategy, such as the United Kingdom, Spain, and the United States of America.

Experts explain that imposing taxes on companies’ total revenues, rather than salaries directly, is in the interest of employment. Contributing very high percentages to the payroll discourages new formal workers.

Naturally, the union collects less at the time of release. But as companies boost their trade and production, they end up collecting more other indirect taxes.

In other words, in the long run, everyone wins: workers, who see more job openings; Companies that sell more; and government, with increased revenues from sales and consumption.

Therefore, vetoing a continuation of the exemption now, as the federal government has done, could cost thousands of jobs during the post-pandemic recovery. It will be up to Congress to assess the risks of such a radical measure and override a presidential veto.

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About the Author: Camelia Kirk

"Friendly zombie guru. Avid pop culture scholar. Freelance travel geek. Wannabe troublemaker. Coffee specialist."

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