Alana Gandra       Reporter Agência Brasil

Rio de Janeiro – José Márcio Camargo, a full professor (“titular”) of economics at the Catholic University of Rio de Janeiro (“Pontifícia Universidade Católica do Rio de Janeiro - PUC-RJ”), with specialization in labor and microeconomics (he has a Ph.D. from MIT), says that the measures in the program to stimulate the industrial sector announced yesterday “do not resolve the problem... because they are mostly more of the same.”

“Reduced payroll taxes, reduced interest on Development Bank (“BNDES”) loans and incentives for investments in research, development and innovation were what we expected and what we got,” said Camargo, referring to the way governments prepare the public for what they are going to do by leaking news about what they are going to do. He recalled that the minister of Finance, Guido Mantega, also said he was going to do something about the exchange rate, but nothing in that area was announced (except that the 6% IOF would remain in place for the foreseeable future and that Brazil intended to strengthen its international reserves further).

In Camargo’s view, the reduced payroll taxes will have a positive effect on the job market. “One of the main reasons for the shadow or informal labor market in Brazil is the tax burden on both employer and employee. With this reduction both sides win; it is a win-win situation. More workers will get jobs in the formal economy and the government gets more tax revenue. The payroll tax reduction is a victory,” he said.

However, there is a downside, Camargo added. More jobs at a moment of low unemployment may put pressure on salaries. “Higher salaries mean more inflationary pressure. The industrial sector could be shooting itself in the foot.” It will pay less taxes on salaries, but probably pay more on business income (“faturamento”). Camargo points out that the Brazilian corporate income tax is inefficient as it is levied on the whole productive chain (“incide em cascata”). The bigger the chain, the more taxes. In general, modern, sophisticated production chains are long and they are the ones most heavily penalized by this form of taxation.

Camargo says he does not see how minister Mantega is going to remove all taxes from exports. “As you buy the material you need to manufacture your product you have to pay taxes at each stage, that is the problem with taxes on corporate income  ("faturamento")."

Camargo is also not optimistic about the lower interest rates the BNDES will charge in the program. He says the bank already has rates close to negative in real terms and that, in the end, companies are not investing for lack of money, but simply because they cannot achieve the necessary levels of competitivity due to structural problems in the country.

Allen Bennett – translator/editor The News in English

Link - Medidas de estímulo à indústria não resolvem problema, diz professor da PUC-RJ