Bloomberg News

Rousseff Party Wants Millionaires to Pay Brazil Protest Demands

June 27, 2013

Brazil’s ruling party is reviving a proposal to tax millionaires to help pay for improvements in public services being demanded by protesters staging the largest demonstrations in two decades.

The move is part of a rush to pass laws that placate demands for cheaper transportation, better education and an end to corruption by the more than 1 million Brazilians who have filled streets nationwide over the past three weeks. The proposal has been under consideration for at least 25 years, though it was brought back to life this week by President Dilma Rousseff’s Workers’ Party as pressure mounted for more spending at a time when budgets are stretched.

“We need to offset the costs of new measures being approved in response to the protests,” Candido Vaccarezza, a lower house lawmaker for the party, known as the PT, said in a phone interview. “We’ve granted businesses tax breaks to help economic growth, now it’s time to get some of that back. The U.S. and Germany have similar taxes.”

About 5,000 anti-government protesters battled police yesterday near a stadium hosting a semi-final match of the Confederations Cup soccer tournament. The demonstration in the city of Fortaleza was the latest in a wave of protests that have left six dead and hundreds injured across Brazil even after authorities in dozens of cities scrapped bus fare increases that sparked the unrest.

Marches also took place yesterday in Rio de Janeiro and Sao Paulo, though they were smaller and less disruptive than those held in recent days. The one in Rio got started as Brazil’s national team arrived under tight security ahead of this weekend’s final against Spain.

World Cup

The game is also expected to attract protests by those denouncing the billions of dollars Brazil is spending on stadiums to host next year’s World Cup.

Amid the threat of further unrest, lawmakers are taking up a number of bills that have languished for years. In a little more than 24 hours, the lower house this week approved tax cuts for urban transportation and a 2007 bill that earmarks oil royalties for education and health care. As part of a marathon session that may delay Congress’s July holidays, the Senate also classified corruption in the same category as murder.

The lower house’s Constitutional Affairs Committee this week approved in less than 10 minutes, with no debate or dissent, a six-year-old bill that bars secret voting when legislators are being impeached.

“That’s what the power of the people does,” said Senator Alvaro Dias, author of the bill and a member of the opposition PSDB party.

Legislative Frenzy

The frenzy of legislative activity comes as Congress, which has been the target of anti-corruption protests, seek to showcase results, said Ricardo Ribeiro, political analyst at MCM Consultores Associados, a Sao Paulo-based business consulting company.

“Congress is trying to do in a few days what they haven’t done in 10 years,”Ribeiro said. “The problem is they are approving measures they’re not sure how to pay for.”

Three bills awaiting final approval by Congress to deal with transportation, health and education issues would cost the federal government 115 billion reais ($52 billion) per year, Valor Economico newspaper reported yesterday.

In an attempt to stimulate economic growth that slowed to 0.9 percent last year, the government in the past year has granted tax breaks worth 44.5 billion reais to lower costs for businesses and boost consumer demand.

Fiscal Pressures

Amid fiscal pressures, the government has started phasing out some of the incentives, including a decision yesterday to raise taxes on furniture and appliances that were temporarily reduced to stimulate consumer spending.

“We’re not in a condition to expand tax breaks right now,” Finance Minister Guido Mantega told reporters yesterday in Brasilia while announcing the measures. “We have to improve our tax collection and fiscal performance, and because of that no new tax breaks are expected.”

Brazil’s public coffers are increasingly stretched amid sluggish growth. The country’s primary budget surplus, which excludes interest payments on debt, fell to 1.89 percent of gross domestic product in the 12 months through April from 2.46 percent in January. Mantega this week repeated his pledge to cut spending if needed to ensure Brazil meets this year’s primary surplus target of 2.3 percent of GDP.

One potential source to tap for more funding is Brazil’s upper class. Latin America’s largest economy had 165,300 millionaires in 2012, up 26 percent from 2008, with assets worth $4 trillion, according to the 2013 World Wealth Report by Capgemini SA and RBC Wealth Management.

Fortunes

Previous PT attempts to tax fortunes have been blocked in Congress. The PT’s Vaccarezza said he was unsure what support the proposal would have now. Details of the bill haven’t been decided, he said.

The PT, which traces its roots to union demonstrations that helped bring down Brazil’s 1964-85 military dictatorship, says there is now more support to tax the rich, particularly businessmen, according to a statement on its website.

“It’s no use making all sorts of promises under pressure from the streets,” Lindbergh Farias, a PT senator from Rio de Janeiro said in an interview. “Promises that won’t be kept will aggravate the mood.”

To contact the reporters on this story: Raymond Colitt in Brasilia Newsroom at rcolitt@bloomberg.net; Arnaldo Galvao in Brasilia Newsroom at agalvao1@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net


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