Mighty Brazil: an overinflated image?
Brazil has performed well, writes guest blogger Greg Michener, but its leaders' swagger reflects an immodesty unmerited for a country as susceptible to the winds of change as Brazil.
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Fiscal mismanagement is not only about keeping the public accounts in order, it’s also about taxation, and how taxation is levied. This government has been praised for its fiscal discipline. Yet its approach to taxation is woefully out of step with the just treatment of citizens. Taxes accost Brazilians from every angle. Less than a week and a half ago, the government sent an executive decree to Congress levying a 30 percent increase on a ‘Tax on Industrialized Goods’ for imported cars (Mercosur excepted). The new measure provides no guarantees that domestic car producers will not raise their own prices in response to the heightened prices of foreign competitors. Effectively, the tax places a burden on consumers – who will pay more for cars – and weakens the international competitiveness of Brazil’s auto industry, which the new tax effectively inoculates against real competition. The original idea behind the measure was to protect domestic auto-makers from imports, driven into Brazil by the strong real. The newly strengthening US dollar and the fall of the real now appears to have alleviated the original bind domestic car makers were having – but the tax remains.Skip to next paragraph
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Another tax that experienced an increase in 2011 is one that would cause a revolt in any other country – a 6.38 percent tax on all credit card purchases made outside the country. In order to force Brazilians to buy overtaxed goods at home, the government attempts to curb spending abroad by placing taxes on foreign credit card spending. What it may effectively achieve is capital flight: driving richer Brazilians to open up accounts in the US or offshore.
Brazil’s Limited Options
Despite Brazil’s many problems, it is still thankfully in much better economic shape than the US or Europe right now. But whereas the US has fiscal options, in Brazil they’re relatively limited. Taxes cannot be raised much more and government cuts in spending look unlikely, what with elections on the horizon, expensive preparations for the 2014 and 2016 games, and the desperate straits of Brazil’s public services. In short, Brazil has little margin for error, which leaves it in a tight spot if the world recession should jump Brazil’s high tariff barriers or narrow the funnel that travels from Brazil’s forests, fields, and mines to China’s kitchens and workshops.
If there’s one place Brazil could be saving money, it’s on administration. By opening up government to greater transparency, citizens might be able to help government reveal inefficiencies, incompetence, and corruption. Eliminating this fat would help Brazil save an inestimably large amount of public money.
Until the Brazilian government acts to clean up its own waste and mal-administration, it should keep its eulogizing about the mismanagement of other countries to itself.
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