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article imageBrazil to cut back cost of labour

By Bob Ewing     Jul 7, 2009 in World
Brazil’s finance minister says its government is preparing sharp cuts to the country’s very high labour costs. It's a way of boosting productivity and growth.
Guido Mantega, Brazil's finance minister, said, “We have the chance to turn the global economic crisis into an opportunity. We want to make a qualitative leap in productivity and put Brazil at the forefront of global growth. These measures will make it possible for a range of industries to compete on world markets.”
The measures will be announced within the next few weeks and include abolishing the 25.5 per cent of each employee’s gross salary employers must pay into a range of welfare funds.
The government adopted other measures in its efforts to counteract the effects of the global economic crisis since last year. It released R$100bn ($51bn, €36bn, £31bn) from reserve requirements – the share of their deposits banks must park at the central bank – to provide funding to the banking sector during the first stages of the credit crunch.
In addition, it made short-term cuts in sales taxes on vehicles and big-ticket household electrical goods, which quickly returned sales to pre-crisis levels.
These tax cuts, were for the most part, meant to expire on June 30, but have been extended for several more months. Selected capital goods were granted new exemptions.
“We have used some short-term measures to provide an impulse during the crisis,” Mantega said.
“Now we are working on measures for the post-crisis period to take advantages of the opportunities offered to Brazil. For that, industry needs lower costs.”
Mantega said workers would not lose benefits due to the cuts in employer contributions.
“We will cover the reductions with other measures,” he said. Mantega provided no details as to how this would be achieved.
There are concerns the government may not be able to afford further stimulus measures as the cost of previous measures, combined with falling tax revenues, has pushed the government into the red after years of consistent primary budget surpluses (revenues minus expenditure, not counting debt payments).
Some measures, such as pay raises for public sector workers are also a concern as they are much harder to reverse later and therefore will put a long-term burden on public accounts already in need of reform.
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