* Payroll tax exemption extended to construction
* Government seeks to boost investment and growth
* Private sector welcomes tax break, wants more
By Alonso Soto and Anthony Boadle
BRASILIA, Dec 4 Brazil's government on Tuesday
extended tax breaks to the country's construction industry in a
new effort to encourage investment and boost flagging growth in
the world's sixth-largest economy.
The Brazilian economy grew much less than expected in the
third quarter, surprising economists and policymakers alike and
putting pressure on the government to widen a barrage of
stimulus measures it launched this year.
Private - sector economists said cutting the heavy tax burden
on Brazil's businesses was the right way to go, but urged a
wholesale overhaul of the tax system instead of sector-by-sector
measures that create uncertainty and ultimately slow investment.
Finance Minister Guido Mantega said the new stimulus, which
includes an extension of a payroll tax exemption for
homebuilders and the construction industry, will help boost
investment and reduce home prices. He added that the government
planned to announce more measures this week.
With the exemptions, the government will forego 2.85 billion
reais ($1.36 billion) in tax revenue a year, money that could be
redirected to investments and construction projects, Mantega
The government will also lower the tax rate charged on total
revenue to 4 percent from 6 percent, freeing up an additional
410 million reais in foregone tax revenue for investments.
"This payroll tax exemption reduces the cost of labor and
makes it easier to hire workers. It makes the building industry
more competitive," President Dilma Rousseff said at an event
marking the completion of one million low-cost houses since 2009
financed by the government.
Once-booming Brazil reported weaker-than-expected third
quarter e conomic g rowth of 0.6 percent c ompared to the previous
quarter, raising concerns that the government's strategy of low
interest rates and selective tax breaks for businesses has so
far failed to kick start Lati n America's larg est economy.
Fitch Ratings cut its growth forecast for Brazil to 1
percent from 1.5 percent for 2012 and to 3.7 percent from 4.2
p ercent f or 2013. A fragile external backdrop and
competitiveness issues fac ed by Brazil hav e hampered its
rec overy this year and investment continues to contract, the
ratin gs agenc y said on Tuesday.
The Rousseff government extended tax breaks earlier this
year to a dozen industries, including Brazil's large car
industry, textiles, shoes and home appliance manufacturers. It
has also rai sed import tariffs on 100 products to shield
domestic producers from foreign competition.
The private sector welcomed the tax break as another step to
reduce the heavy tax burden that companies face in Brazil, which
is just above 35 percent of gross domestic product, making it
one of the most costly places in the world to run a business.
"They have good intentions: they want to stimulate
investments, which is the right approach," said Ilan Goldfajn,
chief economist at Itau Unibanco, Brazil's largest
But he said a more horizontal policy would help the
investment climate more than steps to benefit specific sectors,
which backfires by creating regulatory uncertainty. "I would
prefer to have a payroll tax cut for everybody," he said.
Brazil's biggest publicly listed homebuilders, including PDG
Realty SA, Cyrela Brazil Realty SA and
Gafisa SA, have struggled over the past year as
demand cooled and projects overran budgets and timetables.
Shares of homebuilders initially rallied after the
announcement, but later reverted gains to end lower on the day.