Dilma Calls for a Tax Raise

As impeachment threats from the lower house of the Congress lose momentum, today president Rousseff called on for the approval of a new proposed tax on financial transactions in an attempt to obtain some extra money to balance the country’s books. Today, she addressed the congress in the legislative year’s opening ceremony for the first time since 2011, a sign that she will seek a rapprochement to the divided house.

In her speech, president Rousseff said “Growth requires fiscal stability,” and admitted that “[the] crisis is too painful a moment to be wasted.” In a not very convivial atmosphere, opposition representatives booed and interrupted her several times, only to be countered by the clapping of her supporters.

The new financial tax, known as CPMF in a previous incarnation, will bee levied on every financial transaction, including retail purchases, cash withdrawals, and money transfers between individuals and companies. Rousseff claimed that the the tax would be used to increase revenue in the short term while her administration works on other long-term fiscal proposals.

It is never too much to remind that the Brazilian economy  is in bad shape, having shrunk 3.7% in 2015 as being expected  to contract by 3% in 2016. Inflation is at 10.7%, more than double the 4.5% official target., and the budget deficit reached 10.3% of gross domestic product in December, the widest in more than a decade.

House speaker and Dilma’s nemesis, Eduardo Cunha, said he would examine any administration-sponsored bills but noted that there is no consensus  in the House that Brazil needs more taxes.

Source: President Dilma Rousseff Asks Hostile Congress to Pass Austerity Bills
By Paulo Trevisani
2 February 2016
Copyright © 2016, Dow Jones & Company, Inc.

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Emerging Markets Insights

a blog by Frontier Strategy Group

longandvariable

A blog on macroeconomics and public policy by Tony Yates.

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