Brazil's economic outlook a mixed bag
The simultaneous increase in taxes and the value of the real has put greater pressures on business, particularly the manufacturing and industrial sectors, both of which have become less competitive.
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But revenues appear to be up also because of record tax receipts — almost 20 percent more than last year’s first semester, according to the same Estado de São Paulo report cited earlier. The windfall in tax dollars may be a result of the increased consumption of imports, whose tariffs pay out handsomely for government, and from higher income tax revenues, the product of an increase in real wages — a higher minimum wage and wage inflation.Skip to next paragraph
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Current financial windfalls put the government in a strong position to spend more money. After having paid off most of President Lula da Silva’s pre-election debts, President Dilma Rousseff is apparently eager to do just that — plough dollars into infrastructure and social programs.
Demands for Tax Reform
Yet even as government luxuriates in its newfound wealth, the total tax burden continues to rise in Brazil. It now hovers around 35 percent of GDP, about 10 percent higher than it was when Brazil approved its democratic Constitution in 1988. Taxes in Brazil are now the highest in the hemisphere.
The interesting thing about the simultaneous increase in taxes and the value of the real is that it has put greater pressures on business, particularly the manufacturing and industrial sectors, both of which have become less competitive both here and abroad.
Business, in turn, is understandably putting greater pressure on government for reform. Several organizations have launched campaigns for reforms, as exemplified by this tax-protest video by Brazil’s Federal Confederation of Industry. Taxes and bureaucratic procedures that used to be taken for granted are now being examined with a more critical eye by business, a sector keen to exploit efficiencies. Corruption and waste have also come under the microscope, phenomena that make a high tax burden and rigid bureaucratic imperatives all the more bitter to swallow.
Business owners regularly complain that if they were to comply with all tax and labor laws (which impose their own taxes), they would not be able to keep their businesses afloat. As it stands, the system encourages evasion, illegality, and informality. Tax reform has become a big issue, and President Rousseff has promised to send a tax reform to Congress one piece at a time. The odds are not good: former presidents Fernando Henrique Cardoso and Lula da Silva both failed. What is sure is that the government needs to update burdensome, anachronistic policies that continue to jeopardize Brazil’s international competitiveness.