BRASILIA, July 14 (Reuters) - Brazil’s government has ramped up spending ahead of presidential elections in October, a move that could lead to faster inflation and greater fiscal headaches for the next administration. [ID:nN14128372]
Despite some efforts to trim spending this year as the economy booms, Brazil has taken several other steps that are likely to keep fiscal accounts under pressure.
Here are some of the measures:
President Luiz Inacio Lula da Silva approved a 7.7 percent rise in payouts for pensioners, above the 6.14 percent increase originally proposed. The move came despite concerns from Finance Minister Guido Mantega and Planning Minister Paulo Bernardo, who said the government did not have the fiscal room for the rise despite strong economic growth.
At the time, the government unveiled an additional 1.6 billion reais ($914 million) in cuts from the 2010 budget to compensate for the measure. Mantega said the cuts would be done through a reduction in costs and not investment. [ID:nN15269415]
Brazil’s Congress this year approved a series of projects aimed at increasing personnel in the state apparatus and lifting the wages of workers in the civil service. These will cost the government 586.4 million reais ($335 million) in 2010.
The wage increase applies to some 32,000 civil servants, plus senators and deputies in the lower house of Congress. The government has also sent a bill to Congress seeking to create more than 1,200 jobs in the foreign service.
Some tax breaks implemented during the global financial crisis for key industries have now been phased out in the wake of strong economic growth in the first quarter of this year.
But the government said in June it would extend until December a tax break on trucks and some capital goods. The cut in the industrial products tax (IPI) to zero from 5 percent had been due to expire at the end of June. The extension will cost the government 775 million reais ($443 million), officials said.
The extension applies to large and small trucks, tractors and capital goods including industrial refrigerators and freezers and some machine parts.
Mantega said the tax extension would not have an inflationary impact because it focused on investment rather than consumption. [ID:nN16187926]
In May, the government unveiled measures to boost exports.
These include creating a state lender, EXIM Brasil, to help finance exports. Exporters eligible to receive tax credits would also get those credits more quickly.
The government would also unite several funds related to international commerce under one roof, while a new government purchasing system would favor Brazilian-made products.
Mantega said the bulk of the measures would not cost the government and were only a question of cashflow. [ID:nN05194427]
In March Lula launched a $878 billion program to upgrade Brazil’s infrastructure. The government said the program would spend 1.59 trillion reais on infrastructure in the coming years, with 959 billion reais earmarked for between 2011 and 2014. [ID:nN2998773]
The announcement was seen as a way to set out a major campaign banner for Lula’s chosen presidential candidate Dilma Rousseff. The hugely popular Lula, who cannot run for a third term, had anointed Rousseff the “Mother of the PAC,” the acronym of the flagship infrastructure program.
Over the past two years the national Treasury has lent 180 billion reais ($103 billion) to state development bank BNDES, which has been used as a tool to revive industrial output and extend credit to companies affected by the fallout of the global financial crisis.
Loan disbursements by the BNDES surged 64 percent in the 12 months through May to finance investment and massive state-sponsored infrastructure plans— the cornerstone of Lula’s economic program in his last year in office. [ID:nN01168315]
Brazil took a series of measures to keep its economy afloat during the global financial crisis.
Although these paled in comparison to the multi-billion dollar packages in advanced economies, analysts say a closer look shows more significant stimulus spending in 2009.
The International Monetary Fund estimates that costs with measures taken during the crisis in 2009 amounted to 0.6 percent of gross domestic product in Brazil, compared to 1.5 percent for Britain, 3.1 percent for China and 2 percent for the United States, though the latter excludes the cost of support measures to the financial system.
But Neil Shearing, senior emerging markets economist at Capital Economics in London, says Brazil’s stimulus was closer to 2.6 percent of GDP once lending by public banks is taken into account. ($1=1.75 reais) (Additional reporting by Bruno Peres; Editing by Kieran Murray)