MercoPress. South Atlantic News Agency

Brazil planning to cut taxes to stimulate domestic consumption

Minister Guido Mantega made the announcement

Brazil is considering extending stimulus tax cuts on home appliances even as the country’s economic recovery shows signs of gaining momentum. Tax cuts helped Brazilian auto industry sales to soar.

Finance Minister Guido Mantega said Monday he would decide by the end of the month whether to extend tax cuts on home appliances. The decision hinges on a commitment by retailers and manufacturers to hire more workers and provide better financing to consumers, he told reporters in Sao Paulo.

The International Monetary Fund last week said Brazil and other Latin American economies emerging quickly from the global financial crisis should consider removing fiscal stimulus measures as strong capital inflows put pressure on currencies to appreciate.

Brazil in April cut taxes by as much as 10 percentage points on several home appliances, providing incentives for consumers to boost spending and lead the 1.6 trillion US dollars economy out of its first recession since 2003. Retail sales in August rose for the fourth straight month, by 0.7% from July.

Brazil is expected to grow 4.8% next year, according to a last week Central Bank survey of about 100 economists. In July, economists were forecasting 2010 growth of 3.5%.

President Lula da Silva said Monday the country needs lower taxes to spur domestic demand and meet a World Bank forecast to become the world’s fifth-largest economy by the time it hosts the 2016 Olympics.

Lula da Silva addressing the nation in his weekly radio program said lower taxes coupled with government steps to boost credit will encourage Brazilians to “purchase what they still don’t have.”