Mantega justifies stimulus package saying it will protect jobs in the productive chain

At a public hearing before the Senate Economic Affairs Committee (“Comissão de Assuntos Econômicos (CAE) do Senado”), minister of Finance, Guido Mantega, declared that one of the reasons for the stimulus package announced yesterday was to head off layoffs in the productive sector. He went on to say the goal was to stimulate the economy against a background of slow growth due to the international financial crisis. The main focus of the measures was the automobile industry, he added.

“They have not fired anyone yet, but there is the threat of collective vacations. In order to avoid that, we have decided to act,” explained the minister.

Among the measures to benefit the auto industry were tax reductions on new cars (the IPI tax will go from 11% to 6% on compact cars; from 11% to 6.5% on mid-sized cars; and from 4% to 1% on utility vehicles). The IPI tax reduction will run until August 31 and mean a loss of R$1.2 billion in revenue for the government, according to Mantega. At the same time, the government expects new car prices to fall up to 2.5% and banks, both government-run and private, have promised to do their part in boosting auto sales by easing credit, expanding installment payment plans and reducing the amount required as a down payment.

Mantega also announced that the Central Bank will slacken compulsory deposit rules to the point where some R$18 billion will be allowed to enter circulation. That money is supposed to be available to finance car purchases.

 Finally, the government will also reduce the financial transaction tax (“IOF”) from 2.5% to 1.5%. That will make personal credit cheaper. The IOF reduction is for an indefinite period. Mantega said the government would have revenue losses of around R$900 million during the first three months (until the end of August) the reduction was in effect.