On last Thursday (Aug. 27th) during a speech at the CDES – the Brazilian Social and Economic Development Council – president Lula said he is not to blame for the nearly decade long postponing of the so-called “tax reform”, which would be a major change in the Brazilian taxation system, one of world’s heaviest, most confused and highly bureaucratic taxation systems. Lula defends himself saying the congressmen, the state governors and the unionists (and he build his political career as a unionist) simply jam the “tax reform”.
This is a very hard to believe explanation, as the President has the support of a smashing majority of the congress. This major group of congressmen that supports the President has been nicknamed “steamroller”, as they have been able to approve barely anything the president wants without much difficulty.
To make things even worse the biggest political party in the congress, the PMDB – the Brazilian democratic movement party, one of the parties that supports the president – wants to create a new tax, called CSS (social contribution for health), under the argument the Brazilian Federal Government would need funds to fight the new swine flu.
World’s Heaviest Taxes
Since 2005 the IFC (International Finance Corporation), part of the World Bank, has ranked Brazil among the most bureaucratic countries on the globe, this causes a very negative impact on the economy, as Brazilian companies need many employees to take care of the tax bureaucracy, sky rocketing the costs of white collar staffs. A Brazilian company at 1 billion dollar revenue needs 29 employees to take care of the taxation bureaucracy, the world average is 1 employee.
84 different taxes place Brazil as the world’s most complex taxation system. Not only complex but also among the world’s heaviest taxes. Brazil ranks as second place in taxes on wages. 42.5% of a regular worker’s salary goes to taxes before this worker can put his hands on the paycheck. The only heavier taxes on wages around the globe are in Denmark (42.9%). The South American countries neighboring Brazil have much lighter taxes on wages: Uruguay 28.4% and Argentina 27.7%. Other emerging economies are also way below, Mexico at 9.1% and South Korea at 8.7%.
In less than 10 years the overall impact of taxes has grown in Brazil from the historical 25% of the GDP, that lasted for decades, to nowadays 36% of the GDP, same as the UK’s taxation level. If the public services in Brazil had the same efficiency as in the UK, this would be fair, but only one third of these taxes are invested in basic services for the population, like roads, hospitals and schools, most of it pays the interests of the Brazilian government’s debt and funds policies like the “Family’s Sponsorship”, a monthly allowance the federal government gives to low income families.
The Poor pay more taxes
The indirect costs of taxes end up in the price of products, generating a tax chain effect, all of these costs are paid by the regular consumer. Most of the 84 Brazilian taxes also end up in the price of products and services bought by Brazilian consumers, which is very unfair for the poor. Most of a low income family’s money goes to buy food, clothes and basic services like public transportation and energy, all highly taxed, so the proportion of income that goes to taxes is much higher in these families than in the high income level families.