Rogério L. F. Werneck

An evaluation of the 2003 tax reform effort in Brazil

1This paper provides an assessment of the tax-reform effort launched by the newly elected Lula government in 2003. It analyzes how the envisaged reform had to be changed and scaled down, in the wake of strong political resistance, after a failed attempt to develop a consensual proposal, fully supported by state-governors.

The Brazilian Economy, 1994–2004: An Interim Assessment

INTRODUCTION The Brazilian economic agenda after the successful introduction of the Plano Real in July 1994 continued to be dominated by efforts to stabilise the economy. The evolution of macroeconomic policies and the constraints they faced under the two administrations of Fernando Henrique Cardoso (1995–2002) is the central concern of this chapter, which is inevitably more speculative than its predecessors because it is based on a more restricted range of published research and lacks a sufficiently long time perspective. At first, the main economic policy objective of the Cardoso administration was to consolidate the results of the Plano Real and to make sure that Brazil’s long experience of high inflation was really over. But soon the need to bring public accounts under control and to make a sizable external adjustment would become the main challenges. A major balance of payments crisis early in 1999, immediately after Cardoso’s re-election, imposed much overdue drastic changes in economic policy. Further disturbances occurred in 2002, the last year of Cardoso’s second term, as financial markets reflected fears that economic policy could be reversed with the likely victory of the opposition presidential candidate, Luiz Inacio Lula da Silva, the trade union leader who had emerged from the bitter fights of organised labour against the military dictatorship in the late 1970s and early 1980s, and one of the principal founders of the Partido dos Trabalhadores (PT) – Workers’ Party – in 1980. He had come second to Collor de Mello in the presidential election of 1989 and second to Cardoso in the elections of 1994 and 1998.

Delaying Public Sector Reforms: Post-Stabilization Fiscal Strains in Brazil

Since the mid-1980s Brazil has experienced a period of great macroeconomic instability. Examining the evolution of the primary balance during these years, one identifies three markedly distinct periods: 1985 to 1989, 1990 to 1994, and 1995-96. The average primary surplus increased from 0. 6 percent of GDP in 1985-89, to 3. 1 percent in 1990-94, falling back to less than 0. 1 percent of GDP in 1995-96. The reduction in the operational deficit between 1985-89 and 1990-94 reached almost 5. 5 percent of GDP, with more than half of the improvement coming from falling interest payments. Between 1990-94 and 1995-96, the operational deficit widened by 4. 5 percent of GDP. Only less than a third of that variation may be attributed to rising interest payments. All the rest came from the vanishing primary surplus.