* Payroll tax breaks to be extended to more sectors
* Signals concerns mounting over 2014 growth, inflation
By Patricia Duarte and Asher Levine
SAO PAULO, April 5 Brazil will extend payroll
tax breaks to 14 new sectors starting in 2014, the latest in an
offensive by President Dilma Rousseff's government to keep
businesses hiring and strengthen her re-election chances next
In a decree published late on Thursday, the government said
it will eliminate payroll taxes for construction, engineering,
railway and sea transportation companies. Instead those
companies will pay between 1 percent and 2 percent of their
Since last year, Rousseff has extended payroll tax breaks to
dozens of industries, such as carmakers and other durable goods
manufacturers, in an effort to revive an economy that is
struggling to regain the red-hot growth rates that made it an
emerging market star over the last decade.
The latest stimulus measures suggest the government is
worried about economic growth in 2014, when Rousseff will seek
re-election on the leftist Workers' Party ticket, some
"This is one of the first signals that the government is
worried about 2014," said Gustavo Mendonça, an economist with
Saga Capital in Rio de Janeiro. "The government is looking ahead
and seeing that 2014 may not present as robust growth as it had
expected before, and it is looking at the political
consideration of that as well."
Rousseff has remained immensely popular half way through her
term in office despite a sharp slowdown of the Brazilian
economy, which grew only 0.9 percent in 2012, and steadily
mounting inflation pressure.
Most Brazilians have been willing to shrug that off as long
as unemployment remains at a record low and real wages continue
to rise - both of which require businesses to keep hiring, or at
least put off firing - based on a perception that the economic
outlook is improving.
Part of that includes measures such as tax breaks, intended
to show Brazilian businesses that the government is behind them.
Brazil's economy is expected to rebound to 3 percent growth
this year, but the path toward recovery remains shaky with key
indicators showing growth uneven.
Industrial output shrank more than expected in February,
suggesting a long-expected rebound in the struggling sector has
yet to take place, and some economists are starting to bet the
economy as a whole will expand less than 3 percent in 2013.
Finance Minister Guido Mantega said the new tax breaks will
help bolster investment, which has been the Achilles heel of
Latin America's largest economy.
"This reduction in taxes is positive for the economy because
it lowers costs and makes Brazilian companies more competitive,"
Mantega told reporters on Friday in Sao Paulo. He added that the
new tax breaks will cost the government 5.4 billion reais ($2.68
billion) in tax revenues next year.
In the decree, the government said it will also reduce taxes
on compensation to be paid to electricity companies.
Last year, Rousseff's government enacted legislation to cut
power rates by renegotiating the terms of electricity
concessions. Companies that declined to accept sharply lower
government-mandated rates had the option of giving up their
concessions in exchange for compensation.
The government will also pay billions of dollars to
companies that signed new concession deals to compensate for
their non-amortized investment.