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EFS Informe Especial

"Give and Take" Policy


On March 24th 2011, through a Presidential Decree, the government increased from 2.38% to absurd 6.38% the IOF aliquots - Financial Transactions Tax, required on overseas credit card purchases.

The Federal Government says it has implanted a Fiscal Policy that aims on reducing and controlling dollars outflows in products and services purchases abroad, while safeguarding the national industry, because the Brazilian products and services can not compete with price and quality of foreign products. The reason is that the Brazilian products are burdened with the so called “Brazilian cost”, a mix of inefficiency in governmental investments versus high tax burden.

The proposal could not be better, unless if it was actually true!

The governmental concern has nothing to do with the protection of the Brazilian industry, products, services or fiscal intelligence. Truth be said, the recently elected president Dilma Rousseff found herself in a bad position when pressured by the same union leaders who elected her to correct the rate of the Income Tax Withheld at Source (ITWS). The President, with the requirement of Trade Unions, amended the exemption range of the ITWS from R$ 1,499.15 to R$ 1,566.61. So mostly workers associated to the labor unions which give opinions and suggestions to the government are exempt from paying this Income Tax. Such benefit, fair or not, will cost to the public safe not less than R$ 1,6 billion only in the year of 2001.

Given this paradoxical reality, the Federal Government preferred tracing the same Fiscal Policy practiced by past governments. Spend and spend, and charge more taxes, back and forth, always leaving the debit for the Brazilian citizens and companies. In this case, the solution was to raise at once more than 300% in the IOF incident on abroad debts through credit cards, raising something around R$ 1,75 bi from the taxpayers who are not favored by the Income Tax exemption negotiated with the Unions. 

The worst part of it is that this decision favored – with no warning - nearly 10% of the accommodation budget, meals and transportation of persons who are already traveling, whether for work, study or leisure.

This autophagic policy and the disrespect to the Brazilian people reveals just how delicate the situation of the government accounts is.

There is huge a huge imbalance between the official forecast of revenue and size of government spending, whose numbers were increased by excessive spending of the previous Government, which added the debt until the year 2010 in amounts exceeding US$ 200 billion.

For no other reason, the Executive Director of Standard & Poor's from Brasil, Milena Zaniboni, said that if Brazil fails to meet the primary surplus target of this year, equivalent to 2,9% of the GDP, “there could be a lowering” of the perspective or the grade credit rating, affecting the current grading scale ranking of investment grade (BBB-).

It’s only possible to face the high expenditure left from the previous Government with economical growth. Otherwise, how is it viable to pay the public debt gained during the second half of 2010 by issuing government bonds worth US$ 202 billion? The resources obtained with such billionaire loan were transferred, mostly, to BNDES (who passed almost the whole amount to the increase of participation from the Petrobras Union), to the Northeast Bank, to the Merchant Marine Fund and to Caixa Econômica Federal. This emission of titles by itself corresponded to 12% of the GPD, making the national public debt go up which, according to data from the Central Bank, was already over 64% of the GPD, corresponding to US$ 912 bi more, which cost goes over US$ 333 mi in interests “daily”.
This fiscal imbalance is not possible to be fixed through a simple raise of taxes, even because the inner transactions are taxed in almost 65%, average. Only by reducing the inner public debt interests and cutting the waste in public spending there will be fiscal balance and resources to feasible economical growth leading to increase revenues by scale.

Otherwise, this back and forth policy adds to the deceleration of all economy, affecting Stock Exchanges Market and with that taking Brazil out of the comfortable situation that the global market has given it today, but now – when the world crisis of 2008 seems to be over – starts to be questioned.

Édison Freitas de Siqueira
Presidente do Instituto de Estudos dos Direitos dos Contribuintes

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