Index of Economic Freedom – The Heritage Foundation

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Brazils limited experiment with market-oriented reforms has been uneven and even derailed in some areas. The states presence in such sectors as energy, financial services, and electricity remains extensive. The legacy of decades of central planning, state meddling in economic activity continues even where it has demonstrably failed, and the weak rule of law further undermines economic progress.

The onerous regulatory environment hinders needed economic transformation and undercuts realization of the economys full potential. Growing public debt and higher debt service costs have kept fiscal pressure high, and burdensome taxes further crowd out private-sector growth.

President Dilma Rousseff of the leftist Workers Party began her second term in January 2015. A recession, fiscal and monetary belt-tightening, and a far-reaching kickback scheme involving her party and the state-controlled Petrleo Brasileiro oil company sent her approval rating plummeting. Brazil has poor public services, antiquated and insufficient infrastructure, and high tax rates. In recent years, inflation has surged again. Growth is sluggish, but Brazils Bolsa Famlia conditional cash transfer program for the poor has won support in some sectors. Brazil is the worlds seventh-largest economy, and its population of almost 200 million is heavily concentrated on the Atlantic coast. Since the advent of the monetary real plan in the 1990s and the end of hyperinflation, the poverty rate has dropped, but heavy government intervention in the economy continues to limit development.

Graft remains endemic, and Brazilians disapprove of President Dilma Rousseffs policies on corruption and crime. In 2014, a former director of state-owned Petrobas accused more than 40 politicians, including one minister and three governors, in a massive kickback investigation. Brazils judiciary is inefficient and subject to political and economic influence. The court system is overburdened, and contract disputes can be lengthy and complex.

The income tax rate is 27.5 percent. The standard corporate tax rate is 15 percent, but a financial transactions tax, 10 percent surtax, and 9 percent social contribution on net profits bring the effective rate to 34 percent. The overall tax burden amounts to 33.4 percent of GDP. Public spending equals over one-third of GDP, and fiscal stimulus efforts have increased chronic deficits. Public debt equals about 65 percent of GDP.

Bureaucratic hurdles remain common, including lengthy processes for launching a business and obtaining permits. The non-salary cost of employing a worker adds to the cost of doing business, and labor regulations remain stringent. In 2015, surging state-administered prices for gasoline, electricity, and transportall heavily subsidized before the 2014 presidential electioncaused inflation to reach its highest level in over a decade.

Brazils average tariff rate is 7.8 percent. Brazilians may not import used consumer goods like cars and clothing. Government procurement policies favor domestic companies. Foreign investment in agricultural land is restricted. Brazil has the regions largest financial services market. The states role in credit markets has grown since 2008, and public banks now account for over 50 percent of loans to the private sector.

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Index of Economic Freedom - The Heritage Foundation