December 19, 2012 / 2:55 PM / 5 years ago

UPDATE 3-Brazil extends stimulus for as yet unresponsive economy

* Government extends payroll tax cuts to retailers

* Stimulus thus far has failed to revive stagnant economy

* Finance minister says gasoline prices to rise in 2013

By Luciana Otoni

BRASILIA, Dec 19 (Reuters) - Brazil’s government on Wednesday said it would extend payroll tax cuts already enjoyed by manufacturers to retailers, as President Dilma Rousseff seeks to revive an economy that remains stagnant despite more than a year of stimulus measures.

The government will also temporarily renew existing tax breaks on the purchase of home appliances, but gradually begin phasing out similar breaks on car purchases as of January, Finance Minister Guido Mantega said at a press conference.

The retail tax cuts, aimed toward department stores and hardware retailers - but not supermarkets - are an effort to get shops to lower prices for consumers, Mantega said. Combined with existing tax cuts for Brazil’s struggling manufacturers, the new breaks will represent 16 billion reais ($7.73 billion) in foregone tax revenue by the government, Mantega said.

The continued stimulus measures come as Rousseff, disappointed with economic growth for the year that may not reach even 1 percent, struggles to revive Latin America’s biggest economy.

Brazil’s economy remains in a rut despite stimulus measures that already include tax breaks, a prolonged series of interest rate reductions and the expansion of subsidized credit programs for industry. Even with those efforts, business and industry have cut back on investments and consumers are growing more cautious.

In an address on Wednesday, Rousseff said the government would keep finding ways to make Brazil’s economy more efficient. She said one of her “major struggles” in 2013 would be lowering taxes that have long been considered too steep.

To that end, Mantega said the government will soon propose changes to the ICMS tax regime, a complicated set of interstate duties that has long been criticized by economists, business and investors.

Earlier on Wednesday, Mantega said the government in 2013 will “certainly” raise gasoline prices, which will help stem losses at state owned-oil company Petroleo Brasileiro SA , or Petrobras, which needs extra revenue to fund a massive investment program.

An increase in gasoline prices, however, will also add to concerns that inflation, already above the center of the official government target range, will keep creeping upward.

Meanwhile, Mantega, who has had to revise rosy forecasts all year as the economy limped along, again suggested Brazil is on the mend. In comments over breakfast with reporters in Brasilia, he predicted 2013 growth of 4 percent, still more optimistic than most economists, whose forecasts are closer to 3 percent.

“I see the economy in clear recovery,” Mantega said.

The government is trying to revive investment by business and industries that have grown less competitive because of appreciation in Brazil’s currency, the real, and cheap imports. At the same time, Brazilian industry has lost productivity due to a shortfall in skilled labor and a rapid increases in wages.

Greater investment is crucial in the coming years to help revive an economy that over the past decade was sustained by consumer spending. The retail boom is now seen as exhausted, given high default levels on loans and the looming effects of a prolonged slowdown.


All the same, the government and monetary officials are keeping a close eye on price increases.

Even with sluggish growth, inflation remains persistent because of a spike earlier in the year in global food and energy prices and the country’s long history of indexation, built-in salary and price increases that were introduced during past decades of volatility.

Consumer prices rose in the month to mid-December at the fastest rate since May 2011, data showed on Wednesday. The gradual end of the automobile tax breaks, to be followed in February by the phasing out of some of the breaks for appliances, are an effort to make sure the stimulus for those sectors, while still needed, remains moderate.

The pending gasoline increase will add to price pressure.

Brazil’s government in recent years has kept gasoline prices below global levels. But the strategy has crimped revenues at Petrobras, which earlier this year posted its first quarterly loss in 13 years.

The company’s losses are hampering Brazil’s efforts to more than double oil output by 2020 and join Russia, Saudi Arabia and the United States among the world’s top four oil producers.

Mantega said he expects global oil prices to fall in 2013, which should help curtail price increases elsewhere in the economy.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below