The sight of Brazil’s escalating street protests must be terrifying for policy makers. They have never seen anything like this before and are not showing much sign of knowing what to do about it.
Beyondbrics would like to offer a suggestion.
While nobody expected Brazilians to take to the streets in this way, it is not hard to understand why they have done so. Harder to understand is why, for so many years, they have apparently been happy to pay taxes on a par with the UK in return for services on a par with, well, Brazil.
A government that collects a third of GDP in taxes ought to be able to provide a good standard of health, education, transport, security and so on – all the things that many Brazilians pay twice for, once in taxes and again to a private provider. A first step would be to stop pouring money down the drain of absurdly generous civil service pensions, for example.
But while delivering bang for tax buck is not rocket science, persuading politicians to back it is, in contrast, a truly daunting challenge. Hence our modest proposal.
Brazilians pay a lot of tax. Most of them seem aware of that. But how the money is actually extracted from them is kept hidden from plain view. Here, for example, is the government’s breakdown of its tax take in 2009 and 2010, in percentages of GDP:
(The full document is available online here.)
Of taxation equal to 33.5 per cent of GDP, income tax, personal and corporate, provided just 5.8 percentage points in 2010. The rest was split among a bewildering array of state and municipal sales taxes and payroll taxes. What a Brazilian pays in tax when he buys, say, a pair of tennis shoes, is not revealed – and it will vary from place to place depending on a host of factors such as how many times the tennis shoes have crossed a state border.
Fixing this immensely complex system has the potential to deliver an enormous boost to Brazilian productivity. It has long been at the top of the to-do list of reform-minded politicians. But they just don’t seem quite able to get on with it.
Our proposal is that anything sold in Brazil with a price tag on it should also carry a tax tag. It would be tricky, given the perplexity of the system, but, again, it’s hardly rocket science.
Brazilians might be shocked. They might even protest, possibly on the streets. That might give politicians the incentive they need – a sort of rocket up the backside – to get on and do something about it.
[Update] Thanks to readers below for pointing out that just such a scheme was introduced last week (obliging shops to detail taxes on receipts, rather than on price tags). We should have been aware of it and, obviously, we give it a big welcome – although friends and colleagues in São Paulo who have been checking their receipts say they have seen no sign of it.
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