Taxes in Brazil will go up next year as the government looks to shore up its finances after much criticism from the investment community and the threat of a downgrade to the country’s sovereign credit rating.
Much of the increase will come from a rollback of tax cuts introduced over the last few years to try to bolster growth. Their efficacy has been limited: despite some success in the immediate aftermath of the financial crisis, economic growth has since lost steam.
The economy isn’t expected to have a stellar year in 2014, but bringing back some balance to Brazil’s finances has become more urgent.
Tax increases unveiled Tuesday should add 1.15 billion Brazilian reais ($486 million) to the government’s coffers in 2014, according to the finance ministry.
Other increases could potentially add another 3 billion reais to next year’s revenue, the ministry said. That contrasts with just a few years ago, when Brazil was an exemplar of fiscal discipline among emerging markets.
That helped the country sail through the recent financial and economic crisis that engulfed much of the developed world. The economy has lost steam since 2011 and the government responded by providing more and more tax cuts with little response in activity.
“Maybe for the first time in history Brazil was able to carry out counter-cyclical policy,” said economist Luiz Fernando Figueiredo, a former central-bank director and a founding partner of investment firm Mauá Sekular Participações SA.
“But I think it has become a habit…The end result is that the fiscal policy has lost credibility.” The government’s overall deficit has grown to around 3.45% of gross domestic product, still low compared with many developed countries but enough to raise some alarm bells among investors.
Standard & Poor’s Rating Services in June changed Brazil’s outlook to negative from stable, opening the door to a cut in the country’s sovereign-debt credit rate.
The move reflected “at least the probability…that the government’s growing debt load and the erosion of its macroeconomic stability could lead to a credit downgrade in the next two years,” S&P analysts said in a note in November.
The government says it’s aware of the risks. “Brazil is very keen to having a good rating and good fundamentals,” Treasury Secretary Arno Augustin said earlier this month. He said the government is “strongly working to reduce costs.”
wsj.com
Much of the increase will come from a rollback of tax cuts introduced over the last few years to try to bolster growth. Their efficacy has been limited: despite some success in the immediate aftermath of the financial crisis, economic growth has since lost steam.
The economy isn’t expected to have a stellar year in 2014, but bringing back some balance to Brazil’s finances has become more urgent.
Tax increases unveiled Tuesday should add 1.15 billion Brazilian reais ($486 million) to the government’s coffers in 2014, according to the finance ministry.
Other increases could potentially add another 3 billion reais to next year’s revenue, the ministry said. That contrasts with just a few years ago, when Brazil was an exemplar of fiscal discipline among emerging markets.
That helped the country sail through the recent financial and economic crisis that engulfed much of the developed world. The economy has lost steam since 2011 and the government responded by providing more and more tax cuts with little response in activity.
“Maybe for the first time in history Brazil was able to carry out counter-cyclical policy,” said economist Luiz Fernando Figueiredo, a former central-bank director and a founding partner of investment firm Mauá Sekular Participações SA.
“But I think it has become a habit…The end result is that the fiscal policy has lost credibility.” The government’s overall deficit has grown to around 3.45% of gross domestic product, still low compared with many developed countries but enough to raise some alarm bells among investors.
Standard & Poor’s Rating Services in June changed Brazil’s outlook to negative from stable, opening the door to a cut in the country’s sovereign-debt credit rate.
The move reflected “at least the probability…that the government’s growing debt load and the erosion of its macroeconomic stability could lead to a credit downgrade in the next two years,” S&P analysts said in a note in November.
The government says it’s aware of the risks. “Brazil is very keen to having a good rating and good fundamentals,” Treasury Secretary Arno Augustin said earlier this month. He said the government is “strongly working to reduce costs.”
wsj.com
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