Brazil: Economic measures of the new government

The new economics minister of Brazil, Paulo Guedes, promised a “flood” of new measures within the next days. “There will not be a shortage of news”, he said. According to his speech, the government will implement numerous measures within the next 30 days that do not require a constitutional changes as expected from the media.

The desperately needed structural reforms will be initiated after the new National Congress in inaugurated on February 1st, 2019.

 

“Let us move towards a liberal democracy, open the economy, simplify the taxes, privatize the resources, and decentralize the resources for states and municipalities”, appealed Guedes.

 

Those are the most important reform plans:

 

Tax Reform

Guedes promoted the idea of a unified tax rather than paying many different ones. The minister claims that the ideal tax rate is 20% as opposed to the current rate of 36%.

According to RFB-state secretary, Marcos Cintra, there are different option for introducing the unified tax, such as a tax on financial transactions, the VAT or a tax on revenues from companies. Before the reform plans will be initiated, further tax simplification measures can be expected. One of these measures is the simplification of the PIS/COFINS taxes, which had been introduced by the former government under Michel Temer. With view to income tax Cintra only addressed few tax rates but favors the introduction of a higher, additional rate for high incomes.

 

Privatizations

Guedes says that privatizations are the second pillar of the government right after the pension reform. He stresses that corruption and bought preferential treatment in public companies were at the forefront of scandals within the last years.

The new president of the Caixa Econômica Federal, Pedro Guimarães, said that the bank will start to liberate the capital of its subsidiaries. Moreover, two IPOs are planned for this year offering insurances, credit cards and lottery tickets to the market.

 

Commercial Opening

Guedes claims that the opening-up of trade relations will happen at the same time as the structural reforms of the social security and the tax system.

 

“If you open up the economy without reforms you have to say: the Chinese will win”, he joked.

 

The process of opening up according to Guedes includes the deregulation of trade, goods, services, new technology, and foreign direct investments.

 

Public Banks

Guedes plans to change the performance of public banks while privatizing the credit market. In his speech, he said that he will reclaim 200 Billion Reais that are missing in resources which have been given by the Union to the BNDES. Thus, he plans to qualitatively improve the bank landing system.

Guedes said that today there are two credit systems in place in Brazil, the free market “with interest on top” and the “credit among friends” with lower interest rates. This statement relates to directed loans that have been issued by the BNDES for rural areas and real estate.

 

“The life for those who live in the shadow of the government will become tougher”, Guedes asserted.

 

CLT

Guedes said that Bolsonaro`s government will “desist and renew…the fascist legislation” of the CLT. His goals is to absorb workers from the informal market to the formal one. Furthermore, he plans to reduce the social security contributions for workers so as not to pay the pensions of other people.

 

Job Cuts

The ministry of economics will face the highest number of job cuts – 3100 fixed-term contracts will be dissolved. This requires changes in the institutional structures by decree which has not been finalized yet but already encompasses 158 pages.

 

Reduce Spending

Guedes views the control over state spending as the most import aspect of the ministry:

 

“It does not needs to be dramatically reduced until bleeding but it cannot grow as much as it did in the past”.

 

Guedes promoted an expenditure ceiling that limits the growth of public spending. Adding that additional reforms are required to support his goal.

 

“A roof without a supporting wall falls down. We need reforms that are walls to stabilize our roof!”

 

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