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Brazil's economic outlook a mixed bag

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As a result of the strong real, Brazil’s manufacturing sector is getting hit hard on exports. The commercial deficit, which excludes construction, public utilities, and commodities, was R$30.4 billion in 2010, reports Estado de São Paulo. Luckily, the internal market is strong and high-tariff walls still serve to protect Brazilian industry from foreign competitors.

Yet just as the manufacturing and industrial sectors are feeling something of a squeeze, the government is posting record revenues on taxes. The Estado de São Paulo reported that government accounts are up 123 percent over the same period last year. Remember, of course, that last year was an election year, and President Luiz Inácio Lula da Silva was spending prodigiously to ensure his anointed successor’s victory. Last year the government went into the red, making this year’s surplus — relative to the same period last year — more comprehensible and, indeed, less impressive.

But revenues appear to be up also because of record tax receipts — almost 20 percent more than last year’s first semester, according to the same Estado de São Paulo report cited earlier. The windfall in tax dollars may be a result of the increased consumption of imports, whose tariffs pay out handsomely for government, and from higher income tax revenues, the product of an increase in real wages — a higher minimum wage and wage inflation.

Current financial windfalls put the government in a strong position to spend more money. After having paid off most of President Lula da Silva’s pre-election debts, President Dilma Rousseff is apparently eager to do just that — plough dollars into infrastructure and social programs.

Demands for Tax Reform

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