Brazil Fiscal Policy

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Brazil Fiscal Policy

By | April 2013
Page 1 of 7
Background:
Brazil acted fast to inject short-term liquidity into its financial system and medium-term fiscal stimulus to the broad economy following the collapse in confidence in the global financial system in late 2008. The government of President Luiz Inácio Lula has used a combination of personal tax breaks designed to support spending on consumer goods and automobiles, business tax breaks on construction materials, government spending hikes and support for residential house purchases. However, the cost of stimulus has been low relative to other emerging economies—around 1.5% of GDP, compared to 13% of GDP for China. The long-term challenge for Brazil’s public accounts is simplification and rationalization of its taxation system, one of the most complex of any country and a significant cost-of-doing-business burden. However, the medium-term improvement in public finances has been recognized by all the three main credit rating agencies, which have recently raised Brazil’s borrower status to investment grade.

What is fiscal consolidation?

A conscious policy effort is needed by the government to live within its means and thereby bring down the fiscal deficit and public debt. It includes, among other things, efforts to raise revenues and bring down wasteful expenditure such as subsidies . As a larger mandate, it also involves the participation by state governments in the process. But the whole initiative is planned as a long-term exercise by the government through a road map for fiscal reform rather than through a single Budget announcement. This is particularly true for a country like India where the government's expenditure is way beyond its revenues, forcing it to borrow. Brazil backs away from budget target policy pillar

(Reuters) - The Brazilian government is willing to relax its fiscal discipline to prioritize economic growth in 2013, Treasury chief Arno Augustin told Reuters, backing away from one of the country's main economic policy pillars of...