What is Custo Brazil

Brazil is the most expensive country to live in Latin America. The real problem is that Brazil has become more expensive than most countries in Europe and maybe it is expensive when compared to America as well. The real problem is that people in these developed countries make three times the income of an average Brazilian citizen. Still, their cost of living is much less than compared to Brazilians. The average Brazilian only makes about $600 per month. However, the cost of eating a pizza in downtown Sao Paolo is about $25!

This high cost of living in Brazil has alarmed many Brazilians. They frequently compare the costs using various means. One such method is the Big Mac Index which puts Brazil higher than the United States in the cost of living terms. According to the Big Mac index, the cost of living in Sao Paulo and Rio de Janeiro is just behind rich European nations like Norway and Switzerland. The locals are completely aware of this dichotomy of low wages and a high cost of living in Brazil. In fact, they name this is popularly known as “custo Brazil” or the Brazil cost.

In this article, we will have a closer look at what makes the Brazilian economy so expensive.

High Taxes

Brazil is known for having one of the most complex tax systems in the world. The Brazilian government taxes any goods which have not been produced in the country at a very high tax rate. The problem is that most goods in Brazil are not manufactured there. This is because Brazil does not produce the high tech capital goods which are required to create the modern assembly line. Hence, even if the goods are manufactured in Brazil, the capital goods used to manufacture those goods are imported from abroad. The Brazilian government heavily taxes capital goods as well. This cost gets added to the cost structure and is ultimately borne by the poor customer. Hence, in the end, the Brazilian government is actually benefitting from the misery of poor Brazilians.

Poor Infrastructure

Brazil has one of the worst infrastructures in the world. The country has spent billions of dollars creating stadiums for FIFA World Cup as well as the Olympics. However, the condition of roads in Brazil is very poor. As soon as people step out of cities, they find that the roads are in very bad shape. As a result, more expensive trucks have to be deployed to ferry goods across the nation. These trucks also break down more often. As a result, their repair is also more expensive. All this makes the logistics cost in Brazil one of the highest in the world. Developed countries like America and Switzerland spend less than 9% of their food costs on transportation.

On the other hand, Brazil spends over 25% of the food cost of transportation. This is the reason why food prices in Brazil are almost the same as they are in the developed world even though food grains and meat seem to be available in plenty.

Federal Debt

The Federal government does not have any money to solve these problems. The government cannot really afford to build any more roads. This is because there is already an excruciating amount of debt because of the stadiums that have been built earlier. Also, the government cannot really afford to lower taxes on essential commodities. This is because most of the taxes collected are required to make interest payments. Hence, if the taxes are lowered, the government will have to borrow more, and that will add to the overall debt burden.

The problem in Brazil has been compounded by the rampant corruption that has been present in the nation. This corruption was most prevalent in the infrastructure sector. This is the reason why the government has taken a lot of loans to build roads, but the roads were never made. Instead, the money was pocketed by private companies. The President of Brazil has also been found to be corrupt. The common people are now paying the cost of these bribes in the form of increased prices of every good and service that they buy.

Indebted Population

Brazilians have found a way to exist with extremely low wages and extremely high prices. They use high amounts of debt in order to manage their finances. More than 60% of the people in Brazil are heavily in debt. This is because, for the past 15 years, Brazil has been one of the fastest growing credit card markets.

The market has grown at a compounded annual growth rate of over 20%! However, more than 27% of the people also default on their credit card debt. Due to extremely high inflation, Brazilians are just trying to survive another day. Most of them do not have any significant savings. A lot of them cannot afford a basic lifestyle if debt is not available in huge amounts. Brazilians are known to buy a lot of small ticket items like consumer electronics on debt.

The bottom line is that “custo Brazil” is actually a euphemism for the dire financial situation that is prevailing in Brazil at the moment. There is very little hope for political and economic change. The so-called emerging economy of Brazil may suddenly find itself in the dumps because of this high cost of living.