Tax cuts to fuel growth

Electricity rates will fall by an average of 16.2 percent for households and as much as 28 percent for producers s...
Electricity rates will fall by an average of 16.2 percent for households and as much as 28 percent for producers starting next year, Rousseff said yesterday in a nationally-televised speech to commemorate Brazil_s Independence Day. The move marks a change for the 64-year-old president_s administration, which had previously focused on bolstering consumer demand to aid growth.

_It_s a new concept, a new attitude,_ Rousseff said. _It means reducing production costs and the price of goods to generate jobs and income._

Brazil_s economy has shown signs of recovery after stagnating for the past year, as policy makers reduced the benchmark lending rate more than any other G-20 nation to a record low of 7.5 percent, cut levies on cars and consumer goods and encouraged banks to increase lending. Brazil_s industry pays an average of 330 reais ($162) per megawatt-hour, the fourth- highest rate in the world, according to a statement on the website of the National Industry Confederation.

Stimulus Measures

Brazil_s stimulus measures have been slow to jump-start economic growth, which trails all other BRIC nations. Gross domestic product in the second quarter expanded 0.4 percent from the previous three months, missing economists_ forecasts. Analysts expect economic expansion of 1.64 percent this year, down from 2.7 percent last year and 7.5 percent in 2010, according to the latest central bank survey.

Kraft Foods Inc. (KFT) Chief Executive Officer Irene Rosenfeld cited slower growth in Brazil as a factor in slumping gum revenue during an Aug. 2 conference call with analysts. Mastercard Inc. (MA) CEO Ajaypal Banga said Aug. 30 that the company was watching an economic _softening_ in Brazil.

The government will create conditions for lower interest rates and reduce taxes while ensuring fiscal discipline, Rousseff said. The government will also seek a _fairly valued currency,_ she said. The real has lost 8 percent against the dollar this year, the most in major Latin American countries.

_Won_t Rest_

Banks need to further reduce lending rates to consumers, especially on credit cards, Rousseff said, adding she _won_t rest until that happens._ The effects of Brazil_s accelerated economic recovery would be felt from next year, Rousseff said.
Car and light vehicle sales reached a record high in August, Brazil_s car dealership association Fenabrave said on Sept. 4. Retail sales in June saw the biggest monthly jump since January.

Rousseff_s government this week raised tariffs on imported goods such as petrochemicals and steel to protect local industry, which saw output decline 2.5 percent in the second quarter. That decision drove the Bovespa index to rebound from a one-month low on Sept. 5, as Usinas Siderurgicas de Minas Gerais SA, the country_s second-largest steelmaker, jumped the most in four years on the announcement.

Rousseff has also stepped up efforts to eliminate infrastructure bottlenecks to drive faster growth. Last month, she announced plans to sell licenses to build and operate roads and railways designed to attract as much as $66 billion in investment. The government is also preparing plans to auction concessions to operate and build new ports and airports.

Brazil will seek to spark demand by cutting taxes, Rousseff said.
_I won_t rest from searching for new ways to reduce taxes and utility rates without knocking public accounts out of balance,_ she said.

Brazilian Finance Minister Guido Mantega hinted at the scope of changes Rousseff is seeking in a speech on Aug. 29.

_The Brazilian economy is undergoing a gradual recovery but we must keep taking measures to stimulate investment and consumption,_ he said.

By Raymond Colitt and Matthew Malinowski

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