Taxes And The Economy In Brazil

I read a few blogs of fellow expatriates who live in Brazil, and ran across an interesting tid-bit that I have wanted to write up for a while. In fact I have been thinking of writing something like this for a while, but have put it off until now. I read the following yesterday:

Everything is taxed in Brazil, but it ain’t easy to find out what the tax is nor how much it is. The Governments needs [sic] to work on its “transparency”.

[From Expat American Living in Brazil]

So true. One of the things that initially got my thinking about this entry started was an article in a magazine called "Veja," which is kind of comparable to Time Magazine. The article has some great graphics showing the percentage of taxes one pays for a particular product (Scroll all the way to the bottom of the page to see the complete graphic.)[1]. These taxes are already included in the product at the time of purchase, so they are "hidden."

In fact, I have heard of the government telling people that it is better for Brazil if they buy the smaller packages at the store. Why? Because buying a smaller package costs more than buying in volume; thus the consumer pays more taxes and the government gets more.

The article that precipitated this entry [2] as well as the one quoted above is from the Wall Street Journal, and is about a tax that got shot down in the Brazilian Congress. In the article is a chart called "Growth and Taxes" which is worth a look in and of itself.

The death of any tax anywhere in the world is good economic news, but in a country like Brazil it's only slightly less amazing than the fall of the Berlin Wall was to Eastern Europe.

This was a huge deal here, and a big dissapointment for Lula and his party. I didn't follow the story heavily, but I do remember hearing about it. Here are some interesting statistics from the article:

Dissatisfaction with government is already running high because of a string of corruption scandals that have damaged not only Lula's Workers' Party but also the Social Democrats. Now, the public discussion about taxes is highlighting the fact that the government's propensity to gobble knows no limits. In 2007, the economy grew at 5% while federal tax collection jumped 11.1% in real terms. From 1988-2007, real GDP grew at an annual rate of 2.5% -- while taxes as a percentage of GDP grew at 4.8% and the tax burden per capita grew at 3.3%.

I wonder what they do with all that money? Here are a few things I have noticed after living here for a while:

• There is "free" healthcare here for everyone (which is also a major issue in the US Presidential elections), but anyone who can purchases insurance because the hospitals are so bad.


• Also (and the article refers to this as well) the government creates jobs with this complex tax code—and other policies as well—and these jobs are often given as political favors.


• The jobs mentioned above can be "vapor-jobs" (my term); Jobs where the employee only has to report to work once in a while, and then only to say, "I am not coming in for x days." They still get paid a decent salary, though it would be better if they actually went to work—but wouldn't it be great to have a perma-vacation?

My opinion is that Brazil would be much better off without such heavy taxes, and raising the minimum wage. Less taxes means that businesses could afford more equipment, and the poor could afford things other than the bare necessities. Higher minimum wage would mean that the poor would be able to buy more (thus paying more in taxes).

So does all this make your upcoming check to the IRS a little easier to write? Maybe not. But it could be worse.

A note for those leaving comments: This can be a volatile issue; it is fine if you wish to disagree with me, just do it politely and in good taste or your comment will be mercilessly deleted. Also, if you comment anonymously I will be much more inclined to delete your comment.

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[1] The related article is available here, and I have also linked to Google's English translation here.

[2] Unfortunately this link may not work for long as I cannot find a way to perma-link to the story.