Brazil's next government must cut public spending, red tape and taxes on capital investment and exports, the leader of the country's main industry lobby told Reuters on Thursday. National Confederation of Industry head Robson Andrade said the president who takes office on Jan. 1 must adopt emergency measures to allow Brazil to upgrade its infrastructure to cope with accelerated economic growth. The front-runner in October's presidential race, Dilma Rousseff of the ruling Workers' Party, could adopt investment and export incentives and partially streamline an unwieldy tax structure, but far-reaching reforms needed to ensure Brazil's competitiveness would likely take time to implement, Andrade said in an interview. Brazil's business leaders have long complained about a stiff tax burden, high interest rates, excessive bureaucracy and a rigid labor market. "If there is no change in the country's business climate, we won't transform Brazil into the power and the fifth-largest economy some foresee," Andrade said. Delays in granting environmental permits, drawn-out legal battles and a lack of specialized government staff are a brake on business, he said. Rousseff, President Luiz Inacio Lula da Silva's former chief of staff, has pledged to continue policies that have given Brazil its fastest economic growth in over a decade, around 7.5 percent this year. She leads by a wide margin over her main rival, Jose Serra of the opposition PSDB party. Eager to win over centrist voters and avoid unsettling investors, the former leftwing activist has emphasized market-friendly macroeconomic policies. But she plans to heighten the role of state enterprises in strategic industries such as oil, telecommunications and power. Some such proposals have business leaders worried. "In telecommunications, you have some sectors of government who want to relaunch (state-owned) Telebras, when what we need is to cut public spending, boost efficiency and attract new business," said Andrade. But he said state companies had a big role to play in boosting economic growth, such as the lead taken by state-owned banks in pushing down interest rates and the huge investments and research and development by state oil company Petrobras. BUDGET CONCERNS In the run-up to the election, government spending has ballooned, raising concern among investors over potential inflationary pressure. In the 12 months to July the primary budget surplus target was 2.03 percent, far below the 3.3 percent target. "The next president will have to make some adjustments," Andrade said, referring to necessary budget cuts. But he was not optimistic the incoming government could cut costly pension benefits, one of the government's largest expenditures, or push other reforms in the near-term. "I don't think we'll see a labor, pension or complete tax reform in the short term. These are complicated issues." While Rousseff said she favors specific industry tax incentives and lower long-term lending rates, she has said aggressive reductions in tax levels and the benchmark interest rate were unlikely. At 36 percent of gross domestic product, Brazil's total tax burden is far higher than that of other emerging markets like China, Russia and India. "I don't think its reasonable to expect that a measure can be implemented in the short-term to reduce the tax burden if there's not a cut in spending," Andrade said.
