Dilma’s new broom

Dilma Rousseff has had an uncomfortably busy three months. Following a slew of corruption allegations, Brazil’s president has lost her minister for transport, the number two at the agriculture ministry and her chief of staff. Ms Rousseff’s unyielding stance on corruption is a welcome departure from the relaxed attitude that has typified Brazilian politics for too long – and a further sign that she is stamping her own authority on the government she inherited from Luiz Inácio Lula da Silva.

The cost of corruption is inherently hard to quantify, but it is significant. The São Paolo-based Federation of Industries puts it at between R$50bn and R$84bn per year. That is about 2 per cent of gross domestic product. With big infrastructure projects under way ahead of the 2014 World Cup and the 2016 Olympics, there is scope for much more. It is no coincidence that the transport and tourism ministries have been at the heart of recent scandals. If Brazil is to fulfil its economic potential, corruption must be countered vigorously.

Some fret that Ms Rousseff’s anti-corruption stance will make governing impossible: scratching the backs of coalition partners has long been part of Brazilian politics. But, as recent events in India have shown, leaving corruption to flourish is dangerous. Ms Rousseff has a number of factors in her favour. Her approval ratings are good. Her majority in Congress is large enough to survive the defections of smaller parties. Perhaps most importantly, Brazil’s economic miracle has created a growing and vociferous middle class for whom fighting corruption is an important issue. She should not be deterred.

Ms Rousseff needs more than new officials, however. She must also take a hatchet to the excessive bureaucracy that merely nourishes corruption. A more vigorous tax reform would be a good place to start.

The World Bank estimates it takes a Brazilian business 2,600 hours to complete its tax return. As long as complying with Brazil’s business laws is so burdensome, corrupt officials will always be able to make a quick buck by handing out favours.

As well as thwarting corruption, tax reform would also do much to boost the competitiveness of the Brazilian economy. As the commodity boom begins to fade, and Brazil’s economy slows, that would be a welcome boost. Ms Rousseff knows this and, like many of her predecessors, has mooted overhauling the tax system. Unlike them, she must deliver.