Source: Adriano Machado / Reuters.
Brazil’s G20 bold global taxation proposal: background and context
In July 2024, a new global tax proposal by Brazil’s Finance Minister, Fernando Haddad, in the context of the G-20, broke ground and gathered worldwide attention and scrutiny. Following Brazil’s temporary leadership position in the G-20, composed of the world’s 19 largest economies and the European Union, the proposal, sponsored by Mr Haddad and ultimately approved by all other members, calls for increased cooperation regarding taxation on the global super-rich. Documents and studies commissioned by the Brazilian presidency and based on EU Tax Observatory Coordinator Gabriel Zucman’s work include a proposed 2% global tax on billionaires. If implemented, such a measure could reportedly gather up to 250 billion USD globally. Furthermore, extending the tax requirements for “multimillionaires” could reportedly net an additional 100 billion USD.
The text, put forward in July 2024 in a ministerial congregation involving the G-20’s Finance Ministers and Central Bank Chairmen, has been approved as a joint ministerial declaration. However, it still needs to be ratified this November, at the G-20 summit, which will happen in Rio de Janeiro. The proposal has been widely described as progressive and bold, and its potential approval by the G-20 Heads of State this year could signal a marked turnover in the global tax atmosphere. Mr Haddad’s team has reportedly also based their suggestions on Nobel Prize-winner French economist Esther Duflo, alongside Gabriel Zucman. The expected gains arising from such increased taxation have been noted by Mr Haddad’s team to be of potential use in combatting worldwide issues, such as the climate emergency, energy transition, world hunger, inequality, and other pressing social issues.
Global taxation scenario: from the neoliberal turn to the pressing worldwide issues of the present
Coming from the neoliberal turn of the 1970s and 1980s, the worldwide taxation scenario has been continuously relaxed and liberalized. Following the end of the regulated Bretton Woods system, the termination of the global gold standard, and the widespread relaxation of capital movements, the West, and the world at large have seen an increasingly liberalized tax scenario. The advent of trickle-down economics and the worldwide promotion of neoliberalism and supply-side measures have largely spared corporate and capital taxation while preferring to focus on income and sales taxation, which necessarily penalizes the middle class and working populations more. According to Gabriel Zucman’s recent studies, the effective tax rate on the billionaire class stands at around 0.3%.
In this sense, it’s no surprise that Brazil figures as the originator of the proposal. Mr Haddad’s home country is in a way very representative of these challenges and tax inefficiencies. Struggling to balance his tenure as a Finance Minister of a left-wing party in Brazil with fiscal requirements claimed by markets and institutions, Mr. Haddad’s G-20 global suggestions are very much linked to his domestic issues. Fighting for increased taxation domestically has been one of Mr. Haddad’s main political struggles at home, while his sponsored G-20 suggestion represents another front on the same issue, this time internationally. In late 2023, Haddad’s Ministry had already moved on this issue in Brazil, proposing new regulations and taxation on family-owned, ultra-high-net-worth exclusive investment funds.
Technical difficulties linked to global taxation proposals
However, many technical difficulties have been noted in response to the proposal, and critics are quick to raise points on the operational and technical side, not to mention political and theoretical disagreements. While the main theoretical and ideological proponents linked to low taxation have been slowly ceding ground to more progressive solutions in the face of enormous global challenges— such as the climate emergency or social issues— practical and logistical arguments persist. These objections appear to be the primary rationale used to counter broad and ambitious global tax proposals.
At the same time, the discussion of a global tax reformulation in this context is in and of itself very much a response to previous technical limitations. In the absence of global coordination, country-specific tax raises can often result in capital flight, especially in our current context of increased international money mobility and the lack of capital movement regulation. Thus, bringing this discussion to an international forum with explicit agreement from high-profile stakeholders can be seen as an effort to unify disparate country-specific policies. It aims to establish a strong technical and operational background from which more progressive taxation can arise.
Nevertheless, getting explicit approval from a wide set of high-profile stakeholders can be as challenging or even more so than engaging in country-specific tax policies. International forums are notoriously filled with high-spirited proposals that frequently struggle to see the light of day. Even if innovative and bold proposals can be agreed upon on a clear and widely-observed international stage, they can typically be dehydrated and stripped of their more prepositive ideas by their national application, which frequently is heavily marked by entrenched domestic interests. Mr Haddad himself has reportedly noted that themes of such nature can advance very slowly on an international sphere, but that there was nothing stopping countries from acting even more boldly in their domestic arenas.
Conclusion
Toward the year’s end, G-20’s Chiefs of State will be inevitably brought against this resolution, which has already been signed off by their respective Finance Ministers and Central Bank Chairmen in the July meeting. US Secretary of Treasury Janet Yellen and German Finance Minister Christian Lindner both have reportedly expressed reservations against the proposal, with Yellen allegedly claiming it was better to leave tax discussions to country-specific policies, while Lindner reportedly claiming the proposal to be not relevant. Pressured by their constituency, these stakeholders might well back off from the more aggressive proposals, preferring local discussions and measures; or they might make history with a strong progressive taxation message.
Lastly, originating from the Brazilian staff, this proposal also highlights President Lula’s international footprint, which has been widely noted as one of his strong suits in Brazil’s top executive position. Past TNGO articles have already dealt with Lula’s international ambition. Rivalling his predecessor Bolsonaro’s often lacklustre international profile, Lula’s Itamaraty strives for high-profile actions and high-impact propositions, and aims to position Brazil as a leader of the so-called Global South. Therefore, Brazil’s bold G20 tax proposal serves as a high-powered and forward-looking message on many levels.
Questions For Readers
1) How could a global tax on the super-rich be mobilized to tackle worldwide pressing issues, such as the energy transition?
2) What are the main difficulties associated with such a plan?
3) Should taxation be an issue discussed in an international stage, or is it better served through country-specific policy?
Suggested further readings:
The Brazilian Report. “Brazil’s Proposal to Tax the Super-Rich”. Wilson Center. July 9, 2024.
