For years Brazilians have been coping with high prices, like a popular car that costs up to a third more than in Mexico. But this week, the New York Times digs in and tries to understand the crazy prices in Brazil.
The NYT cites inflation, bottlenecks in transport and protectionism as factors influencing the high prices but concludes that the “dysfunctional tax systems” for the high costs of living. Here is a snapshot:
“Shoppers here with a notion of what items cost abroad need to brace themselves when buying a Samsung Galaxy S4 phone: the same model that costs $615 in the United States is nearly double that in Brazil. An even bigger shock awaits parents needing a crib: the cheapest one at Tok & Stok costs over $440, more than six times the price of a similarly made item at Ikea in the United States.
For Brazilians seething with resentment over wasteful spending by the country’s political elite, the high prices they must pay for just about everything — a large cheese pizza can cost almost $30 — only fuel their ire.
Brazil’s street protests grew out of a popular campaign against bus fare increases. Residents of São Paulo and Rio de Janeiro spend a much larger share of their salaries to ride the bus than residents of New York or Paris. Yet the price of transportation is just one example of the struggles that many Brazilians face in making ends meet, economists say.
Inflation stands at about 6.4 percent, with many in the middle class complaining that they are bearing the brunt of price increases.
“Brazil is on the verge of recession now that the commodities boom is over,” said the Drunkeynesian.
Brazil’s sky-high costs can be attributed to an array of factors, including transportation bottlenecks that make it expensive to get products to consumers, protectionist policies that shield Brazilian manufacturers from competition and a legacy of consumers somewhat inured to relatively high inflation, which remains far below the 2,477 percent reached in 1993, before a drastic restructuring of the economy.
But economists say much of the blame for the stunningly high prices can be placed on a dysfunctional tax system that prioritizes consumption taxes, which are relatively easy to collect, over income taxes.
Alexandre Versignassi, a writer who specializes in deciphering Brazil’s tax code, said companies were grappling with 88 federal, state and municipal taxes, a number of which are charged directly to consumers. Keeping accountants on their toes, the Brazilian authorities issue an estimated 46 new tax rules every day, he said.
Making matters worse for many poor and middle-class Brazilians, loopholes enable the rich to avoid taxation on much of their income; wealthy investors, for instance, can avoid taxes on dividend income, and partners in private companies are taxed at a much lower rate than many regular employees.”
Full Article: NYT