MercoPress. South Atlantic News Agency

Brazil extends tax breaks to construction industry to spur growth

Dilma Rousseff strategy to revive the economy still has to be seen

The Brazilian government extended tax breaks to the country's construction industry in a new effort to encourage investment and boost flagging growth which is putting pressure on the government to further include other stimuli measures.

Finance Minister Guido Mantega said the new stimulus, which includes an extension of a payroll tax exemption for homebuilders and the construction industry, will help boost investment and reduce home prices. He added that the government planned to announce more measures later this week.

With the exemptions, the government will forego 2.85-billion Reais (1.36 billion dollars) in tax revenue a year, money that could be redirected to investments and construction projects, Mantega said.

The government will also lower the tax rate charged on total revenue to 4% from 6%, freeing up an additional 410-million Reais in foregone tax revenue for investments.

“This payroll tax exemption reduces the cost of labour and makes it easier to hire workers. It makes the building industry more competitive,” President Dilma Rousseff said at an event marking the completion of one-million low-cost houses since 2009 financed by the government.

Brazil reported weaker-than-expected third quarter economic growth of 0.6% compared to the previous quarter with Fitch Ratings cutting the growth forecast to 1% from 1.5% for 2012 and to 3.7% from 4.2% for 2013.

The Rousseff government extended tax breaks earlier this year to a dozen industries, including Brazil's large car industry, textiles, shoes and home appliance manufacturers. It has also raised import tariffs on 100 products to shield domestic producers from foreign competition.

The private sector welcomed the tax break as another step to reduce the heavy tax burden that companies face in Brazil, which is just above 35% of GDP making it one of the most costly places in the world to run a business.

Private sector economists have said that cutting the heavy tax burden on Brazil's businesses was the right way to go, but urged a wholesale overhaul of the tax system instead of sector-by-sector measures that create uncertainty and ultimately slow investment.