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Opinion, by Antonio Brassil

RIO DE JANEIRO, BRAZIL – Brazil is world renowned for its beautiful women and rightly so. Visualize Adriana Lima, Giselle Bündchen, or Alessandra Ambrósio, who all had their reign as the “All That” girl of international modeling. Now, go ahead and image any of these beauties ambulating gracefully to the beach in stride with the melodic, yet melancholy rhythm of tune “The girl from Ipanema.” The song, for the few who don’t know it, tells the story of an angelic muse as gorgeous as she is obliviously her silent devotee’s admiration.

In the economic world the Brazilian fiscal authorities have molded their very own version of that ever-so-gorgeous, earthly goddess, yet they remain oblivious to her true admirers in the dance hall of the global marketplace. The Brazilian consumer, unfortunately, has seen that prettiest girl at the dance going home with losers and low-lifes, so he is frustrated because he loves her and would treat her right. But can he blame the “garota?” Many would say no because she’s being led by an irresistible yet misguided driving force: Brazil’s fiscal policies in imported goods.

This week’s Folha de São Paulo reported that the Receita Federal (Federal Income) seized R$ 1.48 billion in irregular merchandise in 2011, a sixteen procent jump from 2010. The largest part of it was foreign vehicles, which experienced a huge increase in their IPI tax this year. While the number is rather large, it is categorically and simultaneously comic and tragic. Why? All major Brazilian cities have neighborhoods that sell millions worth of falsified and illegally imported goods every day in broad daylight. Consider below the sad story spotlighted this week that exemplifies Brazil’s onerous and unfair taxation of foreign products.

Brazilian sound engineer Enrico De Paoli won a Grammy for his work on singer Djavan’s album “Aria.” In that he was not able to attend the ceremony, the award was sent to his home. Upon its arrival the Grammy was hit with almost a hundred procent tax. What? Yes, you heard that right, a hundred procent Grammy tax. The singer posted the picture of this travesty on his Facebook page in protest. Taxing a Grammy as if it were a product made in Brazil and its production in Brazil was vital to the survival and livelihoods of its people is the height of government robbery. Capitalists, distributists, and socialists alike would agree that tax policy such as this ultimately hurts the people.

The Brazilian government clearly claims that its rightful role is to protect Brazilian citizens and workers from unfair advantages from foreign manufacturers and such policies do have a place and application. However, the fiscal authorities neglect that its greater duty is to protect the Brazilian people from the greatest threat to Brazil buying power and prosperity (government over) regulation as well as uneven and unjust enforcement of the laws. Policies like this will only continue to perpetuate the economic division and differences that exist in Brazil. Where the rich will pay R$ 500 for Calvin Klein jeans at Shopping Leblon, the same rip-off pair will be bought for R$ 30 at the Uruguyanan in downtown Rio.

Whom does this help? The rich pay exorbitant prices for merchandise and wind up spending billions upon billions of dollars in Florida annually, simply to buy products at a fair price. This money that lines the wallets of Floridian business owners should be in the coffers of honest Brazilian merchants and retailers. The poor in Brazil can never afford the real deal and have to buy second rate fakes. Genuine competition is not encouraged because the fakers are forced to play on the favela streets, while real companies are playing at an upgraded, state-of-the-art Maracanã. Taxing virtually EVERYTHING at ridiculous rates is only serving to assist the smugglers as well as Brazilian representatives, whose salary before benefits is about thirty times the minimum wage in Brazil. This equals about fifty times the minimum wage after benefits are included! In the last ten years they have seen their salaries balloon about 222 procent.

Brazil, like the beautiful garota at the ball, is blessed with numerous, natural gifts: gilded eyes as its mineral wealth, unlimited energy, vivacious youth and exuberance, and a capacity to give the breath of life to the world through the Amazon, to go with a hope and love of life unmatched in the world. She has it all. She knows that whether she cleans house or not she will get by at the end of the day. She has no need to take drastic steps to improve herself to be a great housekeeper. Her off-the-charts charm allots her ample space to mask manifold blunders.

The Brazilian fiscal credo is to create an economically egalitarian society by enforcing an egregiously punitive tax on virtually all foreign goods that gives politicians salaries dozens of times higher than average Brazilians, while letting them steal to subsidize their mega-salaries. In the off chance that they are caught, they are forced to resign and enjoy a luxurious, early retirement. How does this reality reflect the government’s slogan, “A rich country is a country without poverty?” Obviously, it does not. So, let Brazilian legislators take the first step by cutting their own salaries as done in exemplary fashion by the President and Congress in Singapore.

The financial faux-pas make it sensible for Brazilians of means to fly to the USA, stay in Miami for two nights and buy an iPhone to save money over buying it down the street anywhere in Brazil. Crunch the numbers on the iPhone 4S 64GB. Brazilians could stay in fine hotels in Florida, eat at fancy restaurants, yet still “save” on their high-tech purchases. A more favorable approach by the political class to improve the inequities would be to that initial step of cutting their salaries, followed by gradual tax cuts and eliminating the smuggler incentives step by step.

Brazil is still the prettiest girl at the dance. But all flowers fade in time and the boys at the global dance hall will eventually get tired of a girl who’s too high-maintenance and hard to reach. Moreover, her penchant for dating trashy smugglers and criminals on the side translates into a big turn-off. It’s time to cut the taxes and end the black market. In a country where the black market is potentially as large as $ 200 billion, its end will never come to fruition through police seizures and government regulations.

Rather, greater economic freedom and openness will help the poor to help themselves. Brazil needs to level the playing field for rich and poor by taking the money out of the hands of the politicians and into the hands of all Brazilians through lower taxes and economic freedom of choice. As Milton Friedman said, “A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.”

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Antonio Brassil is a Brazilian-American that travels throughout Brazil’s largest cities as Director of South American operations for an International Fiber-Optics company. He lived in Rio de Janeiro for years as a missionary and English teacher. He authored an Honors Thesis on the ascendency of Brazil and the BRIC nations at the Catholic University of America in Washington DC.

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1 COMMENT

  1. This is a reasonable argument in all but the identification of the victim. Those poor rich, having to go to Florida to buy their Calvin Klein jeans.

    The rich of Brazil have designed a system that suits them: an uncompetitive internal market carved up into territories, the middle class unable to prosper and compete with them, and an enormous amount of cheap labour.

    The facts are these:
    If you are poor in Brazil you pay 50% tax… on food… the only thing you buy.

    If you are middle class you pay about 65% tax because you pay 40% tax (direct and indirect) and then have to pay for medical care and your children’s education… and recently you’ve had to start paying for toll booths, on top of the 80% tax on fuel.

    BUT… if you were incredibly fortunate… and you just happen to be the descendent of one of the noble families that the Emperor of Portugal favoured with a large section of the land of Brazil, stretching from the coast across to Chile… well you pay nothing. There’s no inheritance tax.

    Somehow I don’t think we should be crying for the rich of Brazil.

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