http://www.bloomberg.com/news/2015-01-19/brazil-raises-taxes-by-7-5-billion-to-improve-confidence.html
Brazil is implementing a new tax package in hopes of staving off another downgrade in its credit rating. Brazil, the largest economy in Latin America, is currently one level above junk bond rating, per Standard and Poor's. This tax package is an attempt by Levy, the new finance minister, to increase global confidence in the Brazilian government. This tax package is going to impact an already distressed economy. Growth has been relatively slow compared to Latin America, and this trend is forecasted to continue in 2015. Additionally, inflation is a major concern for the country. It is estimated to be at 6.67% in 2015 while growth is forecasted at a meager 0.38%. The bleak economic conditions, paired with the deteriorating credit of the country is a major concern.
Brazil is an interesting case. Its GINI coefficient is 52.7 according to the World Bank in 2012. This is high compared to most other Latin American countries. Will these taxes be at the expense of the poor due to the focus on specific products? Also, the taxes could increase inflation in the short run. The government is not able to focus on price stability due to the lack of credibility it holds in the bond market. Furthermore, will Brazil be able to effectively implement taxes due to high levels of corruption? In Dream Big, Jorge Lemann, a Brazilian investment banker responsible for the acquisition of Burger King and Anheuser-Busch, noted the corruption and uncertainty that permeates the Brazilian economy. Brazil is forced to take strong action during this time of duress.
2 comments:
This is a very interesting issue!
I read that Brazil is implementing 4 new tax increases:
1)Increasing gasoline prices by $0.07
2) Raising Industrial Production(IPI) tax
3)Importing companies will have to pay higher SS taxes (11.75% instead of 9.25%)
4)Charging imported dollars
Brazil is an interesting case study in corruption. The country as a whole seems to have so much going for it economically, but they seem continually unable to fully implement policies or use their advantages effectively -- why? A large part seems to be corruption: according to a Forbes article (http://www.forbes.com/sites/andersonantunes/2013/11/28/the-cost-of-corruption-in-brazil-could-be-up-to-53-billion-just-this-year-alone/), $53 billion a year is lost to corruption. This is an absurd figure.
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