Brazil’s government unveiled a new package of tax cuts, low-cost credits and other relief for ailing industries on Tuesday, seeking to resurrect a once-booming economy struggling to regain momentum. President Dilma Rousseff stated that “We will not hesitate to do what we must to defend our jobs, our industry and our growth.”

What’s in the package…

The government said it will cut payroll taxes to spur hiring in sectors as varied as textiles and plastics to the automotive industry. Together, the tax cuts represent about R$10 billion annually in forgone public revenue. The government will also stimulate domestic industry through government purchases and inject R$45 billion into the coffers of state development bank BNDES, the main source of long-term financing in Brazil.

Criticism…

Many say that the latest policies fail to tackle the overall tax burdens, heavy bureaucracy and lack of investment that have long held back Brazil. Even Fitch has recently said that further progress remains elusive without “a reduction in cost of doing business.”

FIESP‘s Paulo Skaf:

“The measures are positive, but do not solve the problem of competitiveness in Brazil. If the government wanted to please some specific sectors, it did its job. But if it wants to solve the problem of competitiveness, it did not.”

Raymond James (Mauricio Rosal):

“This doesn’t solve the problem,” said Mauricio Rosal, chief economist at Raymond James in Sao Paulo. Long-term, he added, “this does nothing to address the problems of competitiveness.”

União Química (Fernando Marques):

“The government still needs to tackle the real problems hurting the industry. We need tax reform.”

Link Investimentos (Thiago Carlos):

“We can’t say industry is recovering. It’s still weak and it keeps suffering from problems of competitiveness, and there is no real improvement on the horizon.”

Votorantim Corretora (Roberto Padovani):

“The policy response mitigates some of the short-term distortions, but does not have the power to resolve the serious structural problems of the industry, such as the weight and complexity of the tax system, the labor cost and quality, and the various infrastructure costs.”

Banco Fator (José Francisco de Lima Gonçalves):

“In the short term there is no effect except for some minor improvements in expectations. We will review the projected GDP for 2013 and beyond, but [the package] should not be enough to guarantee much more than 4.0%. For this year, we stick to our original GDP growth projection of 3.3%.”

MB Associados (Sergio Vale):

“The government insists again on short-term strategies of delaying payments of the PIS /Confins taxes of some sectors to the end of the year. What will this help structurally? There should be a long-term thinking and a much broader focus on innovation.”

Sources: Reuters, Valor, Folha

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