Brazil Senate leader sees no room for tax reform this year

By Marcela Ayres BRASILIA, March 14 (Reuters) - The head of Brazil's Senate Economic Affairs Committee said on Tuesday he does not see tax reform being approved this year, countering government optimism in getting the tax system quickly changed to help ignite economic growth. Senator Vanderlan Cardoso, whose Social Democratic Party holds the largest number of seats in the upper chamber, told Reuters the proposal still requires much discussion to address the loss of revenue by state governments that oppose it. "I don't see the climate for approval today. It is very complex, and I think the government is too optimistic about it passing this year," he said in an interview. Economy Minister Fernando Haddad is hoping Congress can pass the tax reform by October. The proposed change in the consumption tax system eyes taxing products at their destination rather than their origin, which would be a disadvantage for less developed states with smaller populations, Cardoso said. The government has recognized the need to compensate these states but has not decided how to do so, he added. Cardoso said there is wide concern in Brazil that interest rates are too high in a slow-moving economy, with the central bank's benchmark rate at a six-year high of 13.75%. However, banking problems in the United States set off by the collapse of Silicon Valley Bank and Signature Bank could end up helping to begin monetary easing in Brazil, the senator said. "Perhaps this will even contribute to interest rate cuts in Brazil because interest rates are high," he said. "There is fear of economic stagnation, a recession, and we do not want that." Since taking office in January, leftist President Luiz Inacio Lula da Silva has repeatedly criticized the central bank for maintaining interest rates at levels that he says impede economic growth, even as inflation loses steam.

Those views, shared by ministers and political allies, have helped steepen the yield curve and worsened inflationary expectations. The government is seeking consensus for the appointment of two central bank directors, whose nomination by Lula must be approved by Cardoso's committee in the Senate. "I don't see any difficulties in approving the names that will be presented. There is, as far as I know, a dialogue regarding the names," he said. (Reporting by Marcela Ayres; Editing by Lincoln Feast.)