President Fernando Henrique Cardoso said today that Brazil's government would not pass tax-reform legislation this year, a development likely to cement international investors' concerns over the future of fiscal reform in Latin America's most populous nation.
For much of this year international investors have predicted that Brazil, with the world's eighth-largest economy, would enact some form of overhaul of its complex tax system. National and international corporations believe that revamping the system is critical to the country's long-term economic competitiveness.
But in a 40-minute interview today, Cardoso said that divisions within the government over how to reform the system have stymied efforts to get a bill to the National Congress by the end of the year.
The president predicted that the legislature would receive and pass a tax-reform bill next year but said: "I'm not telling you it will be approved immediately. It will be difficult."
Earlier this year overseas investors were hoping that Brazil would enact a series of fiscal reforms in areas such as social security and the tax system. But as the year has progressed, the country's fractious Congress has balked at passing significant reforms, in part because of Cardoso's plummeting popularity.
On the tax reform front, the government has struggled to come up with a bill to present to Congress. At issue is a proposal that would allow the federal government to collect all taxes, robbing state and local authorities of one of their most cherished powers.
Cardoso's admission did not come as a shock to investors and analysts yesterday, but they said it would still disappoint those who were hoping to see some movement on this complex issue this year.
"One of the very high expectations was that tax reform would begin to move down the track," said Riordan Roett, an expert on Brazil and an independent director with several mutual funds. "This just confirms our lingering suspicions that Cardoso hasn't put together the kind of political coalition to get this kind of legislation through right now."
And Roett suggested that passage of the legislation next year might prove difficult, given that some 100 members of the Chamber of Deputies, Brazil's lower house of Congress, are expected to run in municipal elections next year.
"It's going to be a short political year," Roett said.
Fabio Giambiagi, an economist with the Brazilian National Development Bank, said that in the short term the government's inability to enact tax reform "will have no impact." Giambiagi said investors had already given up on the possibility of tax reform this year, and he predicted that the government will send a bill to the Chamber of Deputies in early 2000. The legislation may pass there as early as April, he said. If it passes there, the Senate must then approve it.
Whatever the timing, fashioning a more efficient tax system is "very, very important to the long-term" Brazilian economy, Giambiagi said.
CAPTION: President Fernando Henrique Cardoso said Brazil would not pass tax reform this year.