The São Paulo stock exchange has been in the red since Friday’s opening bell, following the Brazilian Economy Ministry’s announcement last night of a hike in financial transactions tax. Between 10 and 11 am, the Ibovespa stock index slipped 1.17 percent.
As we explained in today’s edition of the Brazil Daily newsletter, President Jair Bolsonaro signed a decree raising Brazil’s financial transactions tax IOF from 1.5 to 2.04 percent for companies, and 3 to 4.08 percent for individuals until the end of the year. He hopes to use the extra revenue to fund social welfare programs, with an eye on his 2022 reelection push.
The move spooked investors with positions on foreign currency and tapped into fears about the government’s fiscal responsibility. As we have explained, Mr. Bolsonaro seems inclined to resort to economic populism in order to keep his reelection hopes alive.