Brazil Cuts Taxes to Spur Consumption, Help Factories
Bloomberg, Nov 25, 2009
Brazil cut sales taxes on furniture and extended a measure to lower taxes on construction materials in a bid to spur consumption and help factories and builders.
The announcement came a day after the government extended tax cuts on the sale of some new vehicles. Taxes on furniture and raw materials will be eliminated through March 31, Finance Minister Guido Mantega told reporters today in Brasilia. The government also extended a tax cut on construction materials through the end of June.
Brazilian stocks advanced, sending the benchmark index to the highest since June 2008, on bets sales will rise because of the cuts. The Bovespa stock index rose 0.6 percent to 67,739.06 at 1:34 p.m. New York time. Duratex SA, a maker of bathroom fittings and wood panels, was among the biggest gainers, rising 4 percent to 15.18 reais.
“We are stimulating consumption to say: Brazil will have a market,” Mantega said. “What’s missing in the Brazilian economy today is to stimulate investment.”
The government yesterday announced the extension of tax cuts for new so-called flex fuel vehicles to encourage consumers to buy less-polluting trucks and cars that burn ethanol. The government has also reduced taxes on home appliances this year.
Stimulating Investments
By cutting the taxes, Brazil hopes to stimulate investments and prevent foreign companies from undercutting local producers, Mantega said. The tax cuts will also help to compensate for a loss in foreign demand for exports, caused by the strengthening currency and global economic slump, he said.
“Many countries have spare capacity and they are looking for markets,” Mantega said.
The real is the “most overvalued” currency, Goldman Sachs Group Inc. economist Thomas Stolper wrote today in a note to clients. A “wall of money” coming into Latin America’s biggest economy may overwhelm government efforts to curb the real’s rally, Stolper said.
“After some initial success with capital controls, real appreciation appears to be on the rise again,” Stolper wrote in a note to clients.
The real strengthened 0.33 percent to 1.7255 per dollar at 1:13 p.m. New York time.
Central bank President Henrique Meirelles said today industrial production is rising and the country’s gross domestic product will post “strong growth” in the third quarter.