The Lesson From Brazil
June 25, 2014 By Tomasz Wróblewski
Much has been said about how Brazilians are resentful about the World Cup. The press has carried reports about cuts in social benefits and about a public outcry in Brazil that a disproportionately high amount has been spent on the World Cup compared to social welfare.
Rampant corruption aside, Brazil is famous for all sorts of socialist ideas in its fight against poverty, but such ideas encourage shadowy, under-the-table business deals and, of course, fuel poverty. Brazil’s social spending ranks among the highest in the world, in theory at least. The Brazilian government subsidizes everything from preschools to apartments for the poor, from food to fuel. In order to secure funds for it all, Brazil has built up an elaborate tax system. There are 27 different tax codes in Brazil. According to the World Bank, the average medium-sized business in Brazil needs to spend a record 2,600 hours a year filling out forms and writing reports. Poland’s 286 hours appears modest in comparison. The larger the company and the more foreign capital involved, the more complicated life gets. Foreign corporations need to fill out extra forms and, interestingly enough, it is their responsibility to check if they are subject to the dozens of special taxes levied on them by different agencies, from environmental taxes to social responsibility fees and neighborhood charges. Foreign businesses need to hire local intermediaries to deal with the government and large corporations need Brazilian partners.
Aside from the amount of red tape, Brazil also has very high taxes. According to Bloomberg, the average Brazilian pays far more in taxes than a U.S. citizen and far more than a Pole. As a result, cars in Brazil cost around three times more than in Europe and that includes Toyotas made in Brazil. Designer clothes, which Brazilians are crazy about, cost two to five times what they cost in Europe.
It is excessive - rather than insufficient - social welfare, that has dampened the local market and made Brazilians so desperate. You can hardly blame them for seeing the World Cup as just another substitute for normal life. This could be one of the most valuable lessons for the government. The day will come when you can no longer pull the wool over people’s eyes with firework displays and socialist promises.