Brazil’s business environment: Baby Steps

The Economist

AROUND 11am on September 13th, a “1” followed by 12 zeros lit up on a sign in downtown São Paulo. Brazil’s impostômetro (taxometer) hit one trillion reais ($582 billion) 35 days earlier this year than in 2010. Brazil’s tax take is going up, thanks to a booming economy, crackdowns on evasion and inflation pushing people into higher brackets. But public services remain poor: roads are potholed, airports are crowded and pupils learn less than in many places with lower taxes.

So it is no surprise that the public sector is Brazil’s weakest point in the World Economic Forum’s latest Global Competitiveness Report, released on September 7th. Its government is the seventh most wasteful spender. Its regulatory burden is the heaviest, and its taxes are the most complex. According to the World Bank’s “Doing Business” report, medium-sized Brazilian firms spend 2,600 hours a year paying taxes—over twice as long as the next-slowest country and nearly ten times the average.

Such rankings have encouraged many countries to cut red tape. In Brazil, however, a loose federal structure and a constitution packed with fine regulatory detail obstruct reforms. Harmonising interstate taxes would require all state governors to agree: Luiz Inácio Lula da Silva, president from 2003 to 2010, tried and failed. Many measures to cut labour overheads would require a constitutional amendment.

Some state officials are making it easier to open a business. The federal government is pushing laggards to follow suit. Dilma Rousseff, Lula’s successor, is trying to rationalise interstate taxes, and has so far refused state governors’ request to reintroduce a financial-transactions tax. The government is planning to move business-tax payments online, which should end the problem of multiple filings to different authorities. And for small businesses life is already simpler: since 2007 they have used a unified tax regime known as “Super Simples”. An extension to mid-sized companies is in the works. However, the model firm put through its paces by the “Doing Business” team—a ceramic-pot producer with turnover equal to 1,050 times GDP per head—is too big to qualify.