Author: Julio Sergio Cardozo

Source: Gazeta Mercantil, 06/04/2009

April 6, 2009 - The moment of financial turmoil we are experiencing is an excellent opportunity to reflect on the reasons that prevent Brazil from taking the lead vis-à-vis other world economies - and not just emerging ones. We are able to bring down not only China, but I believe that we will be one of the first to come out of the crisis without major damage.

And you want to know why? Because we live in one of the best periods of economic stability, we have a strong domestic market, a solid banking system, contrary to what is seen abroad, and a cash with reserves of almost US $ 200 billion. However, we run into two major and important obstacles: the overwhelming tax burden and the backward labor law.

Even with the end of the CPMF, Brazil ended 2008 by breaking yet another record of taxes paid by the population. According to a study by the Brazilian Institute of Tax Planning (IBPT), the tax burden reached 36,54% of the Gross Domestic Product (GDP); reaching an unprecedented mark. That is, the taxpayer works, on average, 157 days a year just to pay taxes. It's over five months.

A study by the Federation of Industries of the State of Rio de Janeiro (Firjan) shows that in the last ten years the tax paid by citizens in the country has risen 58% in real terms. There's no way. President leaves, president enters and the scenario remains the same. What only changes are the characters. Even the arrival of President Luiz Inácio Lula da Silva did not stop the tax burden from growing year on year.

The government itself recognizes that taxes have an obsolete and excessively complex structure, which undermines competitiveness and favors tax evasion. But nothing is done. Basically, no government official accepts to give up the collection. Whether to pay interest or to feed the public sector. What ends up being one of the main obstacles to the growth and advancement of companies.

Recently, the beverage manufacturer AmBev announced the closure of its factory in Mogi Mirim (SP), responsible for the annual production of 40 million liters of beer. The company stated in the press that the closing of the unit is the result of a cost-cutting process, which was accentuated in January, with the entry into force of the new rates of the Tax on Industrialized Products (IPI) for beverages.

The IPI increase reached 15% for some AmBev brands. With the new rates, the company said it needed to readjust prices so as not to lose profitability. Information indicates that a few weeks ago one of AmBev's partners, businessman Marcel Telles, would have visited President Lula to complain about the excessive tax burden.

We need the business community to put pressure on the Legislative and Executive powers so that the long-awaited tax reform is carried out, as urgently as possible. As the famous song by Geraldo Vandré says: “Who knows, the hour does not wait to happen”. We need action or we will continue to assist other countries to take the “pole position” of economic growth. “Pole position” that should be ours.

The second aspect, which represents a huge barrier to the country's growth, is the labor laws. It is necessary to rethink the entire scope of legislation that expired a long time ago and only prevents the economy from advancing. It is no coincidence that the Consolidation of Labor Laws (CLT) pushes more and more small businesses, responsible for employing more than 40 million people in Brazil, to illegality and informality.

I have no doubt that Brazil is today less vulnerable to this “tsunami” and should have less impact in relation to other emerging markets. But it will not pass unscathed. An analysis by the Organization for Economic Cooperation and Development (OECD), released last March 6, involving 35 countries, included Brazil among the economies that will experience a “strong slowdown” in the next six months.

Now, it is high time for the Lula government to wake up to reality. The excessive tax burden and anachronistic labor legislation must be faced with courage and detachment, enabling companies to become more competitive and workers to jobs.

President Lula has already entered the history of Brazil. It is time to enter World History as the president who recognized - albeit belatedly - the serious consequences of the global financial crisis and, most importantly, knew how to take this unique opportunity to promote the necessary adjustments for Brazil to start, definitively, in towards the podium. Lula promised “the spectacle of growth”. Here is the opportunity to keep the promise. So, president, accept this invitation and this challenge. After all, you were born to be a champion.

kicker: We need the business community to press its powers so that the long-awaited tax reform is carried out

(Gazeta Mercantil / Finance & Markets - Page 3) (Julio Sergio Cardozo - Founder of Julio Sergio Cardozo e Associados and professor at UERJ)