With less than six months to go before President Jair Bolsonaro puts his electoral popularity to the test in the hope of securing a second term, his government has thrown in the towel in its quest to approve any sweeping constitutional reforms. Instead, the head of state is focusing on smaller populist measures that do not require congressional approval and which could provide momentary jolts to the economy as we approach the election. At the center of this strategy is Brazil’s IPI manufactured goods tax, rates of which the domestic industry is desperate to see fall.
On Tuesday morning, Mr. Bolsonaro announced a decree to cut IPI tax rates by 25 percent as of May 1, applying to almost all products. This was a continuation of an identical cut announced in February, ensuring that industries will pay less tax when importing inputs and other items.
However, as was the case with the president’s recent announcement of 5-percent pay rises for the entirety of Brazil’s civil servants, this latest populist economic measure will only serve to frustrate all sectors involved.
IPI is levied on manufactured goods purchased in Brazil and abroad and has historically been used by presidents as a tool to safeguard the domestic industry and ensure its competitiveness. And with the war in Ukraine and lingering pandemic aftershocks, Brazil’s industry is perhaps in need of more help than ever before.
Last week, the National Confederation of Industry (CNI) cut its forecasts for the sector in 2022, noting disruptions to...
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