UPDATE 1-Brazil extends tax breaks to boost economy

Sat Jun 30, 2012 3:43am IST

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* Tax breaks seek to revive struggling industries

* Measures extended as other stimulus has yet to bear fruit

* Brazil says ready to take more measures to lift activity

By Ana Flor and Natalia Cacioli

SAO PAULO, June 29 (Reuters) - The Brazilian government extended domestic tax breaks on home appliances and furniture, Brazilian Finance Minister Guido Mantega said on Friday, maintaining efforts to help ailing Brazilian industries.

Tax cuts on refrigerators, washing machines and other household appliances known as white goods will be extended for two months and for furniture for three months, Mantega told reporters in Sao Paulo.

The measure is one of several economic stimulus measures unveiled in recent months as President Dilma Rousseff struggles to revive a stagnant Brazilian economy. After annual growth of 7.5 percent in 2010, the economy began to sputter last year and in recent quarters has all but stood still.

"These measures have helped white goods sales increase 22 percent this year," Mantega said. "We hope that in the second half these numbers will increase."

The 22 percent white goods increase was for the January to May period and compared to a year earlier.

The measures should help the economy, which the central bank expects to expand 2.5 percent this year, to grow at an annualized rate of 3.5 percent to 4 percent in the second half of the year.

Reuters, citing a government official, reported early on Friday that Brazil's government planned to extend the tax breaks announced late Friday by Mantega.

Rousseff has made state-led efforts to revive the economy the top priority of her government. Be it through tax incentives for key industries or increased lending by state-controlled banks, Brazil's government plays a leading role in the country's economy, which surpassed Britain's last year to become the world's sixth-largest.

In December, the government slashed the so-called IPI tax on home appliances and in March extended the break to include furniture and other products. Brazilian industries in recent years have been crippled by appreciation of the real, the country's currency, which raised costs for many manufacturers and hindered their ability to compete with a flood of cheap imports.

In addition to tax breaks, Rousseff has also sought to help industry by targeting state purchases of select products. Earlier this week, the government announced measures to increase government purchases of everything from school buses to train wagons to armored vehicles.

The stimulus measures have yet to bear fruit, though.

Brazil's economy is expected in 2012 to post another year of mediocre growth, with some economists predicting growth of as low as 1.5. The central bank, for its part, is forecasting growth of about 2.5 percent.

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