According to Brazil's Finance Minister, Guido Mantega, another presidential temporary decree will create a 0.38% tax on all financial operations in the country. The levy known as IOF (Tax on Financial Operations) will be applied on business and personal financial operations, including real estate loans, insurance, exchange and international credit card operations.
Mantega recognized that the only thing that changed was the name of the tax from CPMF to IOF. "All the government did was to change from six to half a dozen," he told reporters. The new tariff starts being charged today.
The government's package also includes a hike from 9% to 15% in the CSLL (Social Contribution on Net Profit), a tax charged national companies. Company owners will have three months to comply with the higher tariff.
The CSLL and IOF together should raise 10 billion reais (US$ 5.6 billion). As for the other US$ 30 billion reais (US$ 16.8 billion) the government has to make up for there are plans for budget cuts and the hope that the economy will grow enough to cover the remaining 10 billion reais.
According to Mantega, all three powers, Executive, Legislative and Judiciary will have to save money. The details of the cuts should be disclosed only next month, however. Â
"Everyone will have to tighten a little more their belts," said the Finance minister. Mantega assured that the financial sector profitability will not be affected by all these measures.
"We think that we have to make an across-the-board cut," said Planning Minister, Paulo Bernardo. "Our intention, however, is to preserve the PAC (Growth Acceleration Program) and the social programs."
According to Bernardo, the biggest cuts will be made in investments. And he echoed his colleague Mantega saying: "Everybody will need to tighten their belt even if they need to add a hole to it."
The Finance minister ruled out new resources for the health sector, which directly benefited from the old CPMF tax. He also discarded any reduction of taxes for industries.
The Planning minister added that the competitive examinations for public posts will be reevaluated and that cleaning and security guard contracts will be reviewed.
On December 20, president Lula said that he wasn't worried at all about having lost his battle to keep the CPMFÂ tax alive. "I didn't lose not even a minute of sleep over this," he told reporters, adding:
"The only one who is worried is Guido Mantega because he is the one who sits on the money…We will find a way out to compensate for the 40 billion reais."
That same day the president guaranteed that there wouldn't be any tax package to compensate for the CPMF loss and that the would not think about the subject before 2008.