BRASILIA, JUNE 26th, 2025 - As Brazil looks to address budget constraints, it can adopt policies that close the fiscal gap, enhance environmental protection and create enhanced employment opportunities, according to a new World Bank report. The study, titled "Double Dividend: Policies to Achieve Fiscal and Environmental Sustainability," outlines policy options that could help Brazil achieve a fiscal balance improvement of more than 5 percent of GDP while tackling pressing environmental challenges, such as deforestation. Key recommendations include pricing of greenhouse gas (GHG) emissions, through an emissions trading system, appropriate taxation of fossil fuels, strengthening the rural land tax, and reforming intergovernmental fiscal transfers.
"The recommendations provided in the report offer a roadmap for policymakers to design and implement effective instruments that promote both fiscal and environmental sustainability-a win-win," said Johannes Zutt, World Bank Country Director for Brazil.
With public debt approaching 80% of GDP, Brazil faces significant budgetary challenges to ensure economic stability and fairness for future generations. To achieve this, Brazil should aim for a surplus of revenues over expenditures (before interest payments) of about 3% of GDP, compared to a small deficit projected for 2024. Given Brazil's already high revenues, while some adjustments can be made on the tax side, most should come from government spending.
The publication suggests reforms that can help governments reduce financial burdens and free up resources for policies that can help protect the environment. An administrative overhaul, focusing on public salaries, careers, and human resources policies, offers opportunities for fiscal savings and improved performance. Reducing entry-level salaries by 20% on average and lengthening career progressions could generate savings of about 0.1% of GDP annually by year ten.
Delinking pensions from the minimum wage and reforming military retirement benefits to align them with other regimes would reduce system outlays while improving equity. Additionally, broadening the personal income tax base by eliminating exemptions and reducing deductions, which predominantly benefit the wealthy, would align Brazil's tax system with international practices.
Brazil's official targets include reducing greenhouse gas emissions by at least 59% by 2030 and achieving net zero emissions by 2050. However, current fiscal policies do little to incentivize emissions reductions or environmental protection.
The report proposes appropriate taxation of fossil fuel and supporting low-carbon technologies, such as renewable energy and green hydrogen. It also recommends investing in public transportation, and rail and water-based transport. The study suggests increasing public funding and encouraging private investment in renewable electricity generation and transmission.
In the agricultural sector, reducing untargeted subsidies and tax expenditures could deliver additional savings of up to 0.5% of GDP while promoting more sustainable practices.
The report emphasizes the importance of broadening Brazil's tax base while advancing taxes that incentivize low-carbon activities. This approach would better align the country's high tax burden with environmental objectives. By eliminating inefficient tax expenditures and increasing taxes on high incomes and large rural properties, Brazil can support fiscal adjustment and promote environmental sustainability.
Reforming the currently ineffective rural land tax would ensure that Brazil's highly profitable commercial agriculture contributes to the fiscal adjustment. It would also incentivize conservation and agricultural growth through productivity gains rather than land expansion. A limited reform of this tax, adjusting parameters within current legislation, could yield about 0.1% of GDP in additional revenue. A more ambitious reform, aligning Brazil with global benchmarks, could raise up to 0.6% of GDP, which could be partly used to support forest conservation and restoration of degraded areas.
Website: https://www.worldbank.org/en/country/brazil
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