Brazil Broadens Tax Breaks on Consumer Goods to Help Industry

Brazil extended tax cuts on appliances such as refrigerators and washing machines, and reduced levies on other goods, as it seeks to help manufacturers hurt by a slowdown in economic growth and a surge in imports.

Finance Minister Guido Mantega said that the tax cuts, which were set to expire this month and are now being extended until June 30, will save jobs and boost consumption in Latin America’s biggest economy.

“The industry’s end of the bargain is a commitment to maintaining employment,” Mantega told reporters in Sao Paulo yesterday before a meeting with industrialists. “There can’t be layoffs in these sectors.”

The tax breaks are the latest effort by President Dilma Rousseff’s government to stimulate the economy, whose 2.7 percent growth last year trailed crisis-bound Germany and other major Latin American nations. Industrial output in January fell 2.1 percent, the biggest decline in more than three years.

Tax cuts on white goods will benefit manufacturers including affiliates of companies such as Panasonic Corp. and Samsung Electronics Co. Ltd. The nation’s furniture, wallpaper, lampshade and flooring industries will also benefit from the tax breaks, which will cost the government 489 million reais ($269 million) in lost revenue this year, he said.

Mantega said that the government is preparing to reduce payroll taxes for labor intensive industries including makers of furniture, shoes, auto parts and ships

Slowing Growth

Economic growth slowed by more than half last year, from 7.5 percent in 2010, after the government raised interest rates, curbed public spending and took measures to slow credit expansion amid a surge in prices.

Since August, Rousseff’s administration has reversed course in an effort to ensure economic growth of at least 4.5 percent this year. The central bank has reduced the benchmark interest rate five times and said that borrowing costs will probably fall to just above the 8.75 percent record low.

In addition to weaker growth, industrialists have been complaining of a surge in imports fueled by 28 percent gains in the currency since the end of 2008.

After a 30 percent surge in car imports last year, the government decided to protect local carmakers by raising taxes on vehicles that are made abroad. Chery Automobile Co. Ltd. from China challenged the measure in court, while Japan’s government complained to the Geneva-based World Trade Organization that the measure was protectionist.

To contact the reporter on this story: Felipe Frisch in Sao Paulo at ffrisch1@bloomberg.net; Andre Soliani in Brasilia at asoliani@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.

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