An embattled and embittered population awaits with bated breath
The administration has announced that this week (Thursday or Friday) it will announce the fiscal adjustment program to be enacted this year. Presumably it will include the financial transactions tax (CPMF) to raise revenues. This tax is the single most unfair, inequitable tax I have ever come across. It is double taxation at each level of incidence because it is applied over sales and other taxes already paid (i.e. ad valorem), it is regressive because it falls most heavily on the poor, and it is totally unavoidable. It has a huge multiplier effect since it is applied at every transaction beginning with the purchase of raw materials, through the sale of intermediates, wholesale to distributors, distributor sales to vendors, and against final consumption. In short, it's an economic monstrosity.
Pundits and analysts also suggest that the administration will seek to spend its way out of recession and do so in areas that provide a very low "social rate of return" (e.g. low-cost, subsidized housing and income maintenance programs for the poorest in the economy). While such programs are laudible in their intent, they do little to improve the efficiency of the economy. You can only run them if you have a sizeable surplus to invest for future productivity and consumption gains. Even education and health programs have a relatively long timeline to maturity.
It does little good at this point to ask how Brazil got where it is. That's simply debating sunk costs. The question now is how to get out of the place where Brazil finds itself. Brazil got off to an inauspicious start in Davos. Let's see what this week brings!
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