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Prices Fuel Outrage in Brazil, Home of the $30 Cheese Pizza

Brazil's Seeds of Protest: Brazilians express their grievances with the lack of resources invested in education and health care.

By SIMON ROMERO

Published: July 22, 2013 17 Comments

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SÃO PAULO, Brazil — Shoppers here with a notion of what items cost abroad need to brace themselves when buying a Samsung Galaxy S4 phone: the same model that costs $615 in the United States is nearly double that in Brazil. An even bigger shock awaits parents needing a crib: the cheapest one at Tok & Stok costs over $440, more than six times the price of a similarly made item at Ikea in the United States.

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Samples of Sales Taxes on Products in Brazil

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For Brazilians seething with resentment over wasteful spending by the country’s political elite, the high prices they must pay for just about everything — a large cheese pizza can cost almost $30 — only fuel their ire.

“People get angry because we know there are ways to get things cheaper; we see it elsewhere, so we know there must be something wrong here,” said Luana Medeiros, 28, who works in the Education Ministry.

Brazil’s street protests grew out of a popular campaign against bus fare increases. Residents of São Paulo and Rio de Janeiro spend a much larger share of their salaries to ride the bus than residents of New York or Paris. Yet the price of transportation is just one example of the struggles that many Brazilians face in making ends meet, economists say.

Renting an apartment in coveted areas of Rio has become more expensive than in Oslo, the capital of oil-rich Norway. Before the protests, soaring prices for basic foods like tomatoes prompted parodies of President Dilma Rousseff and her economic advisers.

Inflation stands at about 6.4 percent, with many in the middle class complaining that they are bearing the brunt of price increases. Limiting the authorities’ maneuvering room, the popular indignation is festering at a time when huge stimulus projects are failing to lift the economy from a slowdown, raising the specter of stagflation in Latin America’s largest economy.

“Brazil is on the verge of recession now that the commodities boom is over,” said Luciano Sobral, an economist and a partner in a São Paulo asset management firm who maintains an irreverent economics blog under the name the Drunkeynesian. “This is making it impossible to ignore the high prices which plague Brazilians, especially those who cannot easily afford to travel abroad for buying sprees where things are cheaper.”

Brazil’s sky-high costs can be attributed to an array of factors, including transportation bottlenecks that make it expensive to get products to consumers, protectionist policies that shield Brazilian manufacturers from competition and a legacy of consumers somewhat inured to relatively high inflation, which remains far below the 2,477 percent reached in 1993, before a drastic restructuring of the economy.

But economists say much of the blame for the stunningly high prices can be placed on a dysfunctional tax system that prioritizes consumption taxes, which are relatively easy to collect, over income taxes.

Alexandre Versignassi, a writer who specializes in deciphering Brazil’s tax code, said companies were grappling with 88 federal, state and municipal taxes, a number of which are charged directly to consumers. Keeping accountants on their toes, the Brazilian authorities issue an estimated 46 new tax rules every day, he said.

Making matters worse for many poor and middle-class Brazilians, loopholes enable the rich to avoid taxation on much of their income; wealthy investors, for instance, can avoid taxes on dividend income, and partners in private companies are taxed at a much lower rate than many regular employees.

The result is that many products made in Brazil, like automobiles, cost much more here than in the far-flung countries that import them. One example is the Gol, a subcompact car produced by Volkswagen at a factory in the São Paulo metropolitan area. A four-door Gol with air-conditioning sells for about $16,100 here, including taxes. In Mexico, the equivalent model, made in Brazil but sold to Mexicans as the Nuevo Gol, costs thousands of dollars less.

The ability of many Brazilians to afford such cars reflects positive economic changes over the past decade, like the rise of millions of people from grinding poverty and a decline in unemployment, which is now at historically low levels. Salaries climbed during that time, with per-capita income now about $11,630, as measured by the World Bank, compared with $6,990 in neighboring Colombia. But Brazil finds itself far below developed nations like Canada, where the per-capita income is $50,970.

As a result, a resident of São Paulo, Brazil’s financial capital, has to work an average of 106 hours to buy an iPhone, while someone in Brussels labors 54 hours to buy the same product, according to a global study of wages by the investment bank UBS. To buy a Big Mac, a resident here has to work 39 minutes, compared with 11 minutes for a resident of Chicago.

Stroll into any international airport in Brazil, and such imbalances are vividly on display, with thousands of residents packing into flights each day for shopping trips to countries where goods are substantially cheaper.

Even though the Brazilian currency, the real, has weakened against the dollar this year (it currently stands at about 2.20 to the dollar), Brazilians spent $2.2 billion abroad in May, the highest amount on record for the month since the central bank began tracking such data in 1969.

Eyeing this market, some travel agents have begun tailoring trips to Miami for clients eager to buy baby products like digital monitors, strollers, pacifiers, even Pampers wipes, which in Brazil cost almost three times as much as in the United States.

Seeking to prevent such shopping binges from getting out of control, the federal police screen travelers upon arrival, picking out people whose luggage appears to bulge with too many items. If it can be proved that Brazilians spent over a certain limit abroad, they are immediately forced to pay taxes on their purchases.

Such screening catches foreigners, too. In May, the police at São Paulo’s international airport arrested two American Airlines flight attendants, both American citizens, on smuggling charges after they were found going through customs carrying a total of 14 smartphones, 4 tablet computers, 3 luxury watches and several video games. The smartphones were hidden in their underwear, the police said, and were intended to be sold on the black market.

Before the protests began, Brazil’s government had begun trying to combat price increases. The central bank raised interest rates after an uproar over food prices this year contributed to inflation fears. The authorities removed some taxes on some products, like cars. Even so, inflation remains high while the economy remains sluggish, leaving many Brazilians fuming about the high taxes embedded in the price of products they buy.

A new federal law requiring retailers to detail on receipts how much tax customers are being charged has fed some of this anger. Fernando Bergamini, 38, a graphic designer, was stunned after spending $92 one recent day on groceries like tomatoes, beans and bananas, only to glance at his receipt and discover that $25 of that was in taxes.

“It is shocking given the services we receive for giving the government our money,” Mr. Bergamini said. “Seeing it like this on a piece of paper makes me feel indignant.”

Lucy Jordan contributed reporting from Brasília, Taylor Barnes from Rio de Janeiro, and Paula Ramon from São Paulo.