Brazil Seeks to Tax Derivatives; No BRIC Decoupling

In response to Europe Plans to Tax Stock and Bond Transactions .1%, Derivatives .01% Despite US Objections; Expect More Crashes Should it Pass I received a response from a reader in Brazil about BRIC decoupling (more specifically, the lack thereof).

LTBR writes ...

Hi Mish,

Brazil is also trying to push a tax on derivatives. However, the opposition is faking outrage. They will pass, for sure, because those crook politicians never met a tax they didn't like.

I think that Brazil is freaking out, because they know that China's economy is about to crash. I've noticed that lately Brazil is trying to collect money with taxing about anything, fearing that China's bubble and the commodities party is ending. For instance, Brazil just proposed a 30% tax (IPI) on any car mfr. with less than 80% of its parts made in Brazil. China's auto mfr. PAC has given up on opening a factory in Brazil, after this special tax nonsense was announced. Other companies are trying the judicial system to cancel this tax.

Keep in mind that import cars in Brazil cost already 3 times more than at its country of origin. And the place is full of imports, since it's a land of wannabes who love to live beyond their means.

Another problem with taxing derivatives, which you have mentioned, is that exporters use it to hedge their exports. Since Brazil is a large net exporter, that tax will eat a big chunk of exporter's profits. All to fund welfare for buying votes from the poor or to transfer taxes to their political parties, unions, and corporate cronies.

Here's the link to the article about taxing derivatives in Brazil, if you want to read on Google Translate: Opposition wants to hear before voting Mantega IOF derivatives

Regards,

Long time Brazilian reader with degree from American B-School.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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