Brazil Offers More Tax Cuts & Subsidized Loans To Industries
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The Brazilian government rolled out more tax cuts and other relief packages for ailing industries on Tuesday, after President Dilma Rousseff claimed that “predatory competition” from big exporters like China and the U.S. were harming the nation’s economy.
Speaking to business leaders in the Brazilian capital of Brasilia, Rousseff said that the new measures were necessary in order to revive the nation’s economic growth, after it slowed to just 2.7 percent growth last year compared to 7.5 percent growth in 2010.
The Brazilian government rolled out more tax cuts and other relief packages for ailing industries on Tuesday, after President Dilma Rousseff claimed that “predatory competition” from big exporters like China and the U.S. were harming the nation’s economy.
Speaking to business leaders in the Brazilian capital of Brasilia, Rousseff said that the new measures were necessary in order to revive the nation’s economic growth, after it slowed to just 2.7 percent growth last year compared to 7.5 percent growth in 2010.
And while Brazil has overtaken the U.K. as the sixth largest economy in the world, Rousseff argued that the “currency war” between China, the U.S and the E.U. was leaving all their currencies artificially weak, thus leading to unfair competition against the Brazilian Real.
[quote]”We will not hesitate to do what we must to defend our jobs, our industry and our growth,” said Rousseff, as quoted by Reuters.[/quote]Among the measures imposed by the government will include the elimination of 12.1 billion real ($6.56 billion) of payroll taxes through 2013 for some of the country’s hardest-hit industries, including auto and textile manufacturers.
The country’s state development bank, the Brazilian Development Bank (BNDES) will also increase its subsidized loans to Brazilian companies to 45 billion real ($25 billion).
Brazilian Finance Minister Guido Mantega, who unveiled the measures before Rousseff and other government officials, added that Brazil could be forced to engage in currency intervention in the future, in order to compete with their rivals, by preventing the real from strengthening even further.
But while the reforms have been welcome by some in Brazil, other business leaders and economists have questioned whether the move is adequate enough to reinvigorate the Brazilian economy.
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[quote]”This doesn’t solve the problem,” said Mauricio Rosal, chief economist at Raymond James in Sao Paulo. Long-term, he added, “this does nothing to address the problems of competitiveness.”[/quote]Fernando Marques, a owner of a local pharmaceutical company, added the government needed to do more in order to spur industries.
“The government still needs to tackle the real problems hurting industry,” he said. “We need tax reform.”
Brazil’s industrial output showed signs of recovery in February when it rose by 1.3 percent, after contracting by 1.5 percent in the previous month. Still, year-on-year data showed that industrial output in Brazil had fallen by 3.9 percent this year.
[quote]”We can’t say industry is recovering,” said Thiago Carlos, an economist at Link Investimentos in Sao Paulo. “It’s still weak and it keeps suffering from problems of competitiveness, and there is no real improvement on the horizon.”[/quote]
