In addition to the impact of the Covid-19 pandemic on productivity, states are also worried about climbing default rates. While they predict tax revenue could fall by between 19 and 32 percent, states report the level of default could rise from around 5 percent to up to 20 percent in some places.
In São Paulo, the state’s Economy Secretary Henrique Meirelles expects a drop of 19 percent in the amount the government will raise from taxes. In March, the state had already registered a decline of around 50 percent in productivity in comparison to 2019. The state projects a loss of BRL 16 billion (USD 3.15 billion) until the end of 2020. “There is no other option. We will have to severely cut spending,” Mr. Meirelles said.
Other states face similar problems. Alagoas has reported April tax revenue is 45 percent below their initial targets, while in Rio Grande do Sul, the state government forecasts raising BRL 700 million instead of the BRL 4 billion predicted previously.