Analyzing public spending in Brazil

. Aug 02, 2018
Analyzing public spending in Brazil

Brazil is undergoing an extremely sensitive economic moment. Public debt is rampant, investments are down, and the government doesn’t seem to be able to rationalize public spending. According to the Treasury Department, the public sector registered a BRL 13.5 billion primary deficit in June alone. Meaning that, even without taking into consideration the interest rates over the debt, the federal government’s revenues is not enough to pay for its expenses.

brazil public spending deficit budget recession

The next president will step into office already facing the possibility of not being able to meet the so-called “golden rule,” which stipulates that Brazil can only increase its debt to pay for investments – the money can’t be used for basic expenses, such as wages. Breaking this rule is an impeachable offense.

Due to the continuous deficits that have haunted the central government since 2014, breaking the golden rule appears inevitable in the opinion of economists at the Ministry of Finance. To avoid the worse, the administration is studying “legal alternatives” which would include amending the Constitution. Another solution could be a bill authorizing the government to break the rule during a specific time frame. But a vote like that has no chance of passing before the October election.

</span></p> <p><span style="font-weight: 400;">Not even the </span><a href=""><span style="font-weight: 400;">federal spending cap</span></a><span style="font-weight: 400;"> approved by the government in 2016 has managed to rein in the federal budget. Without reforms, Brazil would need a 5-percent annual GDP growth rate in order to </span><a href=""><span style="font-weight: 400;">return to the black</span></a><span style="font-weight: 400;"> &#8211; and that&#8217;s not happening any time soon. Markets predict a mere 1.5-percent GDP growth for this year. In 2019, the rate should rise to no further than 2.5 percent.</span></p> <h2>Dissecting public spending</h2> <p><span style="font-weight: 400;">The government&#8217;s basic expenses have eaten up roughly 80 percent of the total public spending in 2018. Investments, on the other hand, have dried to the bare minimum. We have </span><a href=""><span style="font-weight: 400;">compiled data</span></a><span style="font-weight: 400;"> from the Directory for Analysis of Public Policy of </span><a href=""><span style="font-weight: 400;">think tank</span></a><span style="font-weight: 400;"> Fundação Getulio Vargas. You can compare how the government has managed the federal budget, spanning from the last year of Fernando Henrique Cardoso, to Lula&#8217;s 8 years, Dilma Rousseff&#8217;s 6 years, and Michel Temer two and a half years.&nbsp;</span></p> <hr> <p><img loading="lazy" class="alignnone size-large wp-image-6669" src="" alt="brazil public spending deficit budget recession" width="1024" height="683" srcset=" 1024w, 300w, 768w, 610w, 1200w" sizes="(max-width: 1024px) 100vw, 1024px" /></p> <hr> <h2>Public spending in 2018</h2> <p><span style="font-weight: 400;">We have also dissected how the government has spent in each sector. </span></p> <hr> <p><img loading="lazy" class="size-large wp-image-6670 aligncenter" src="" alt="brazil public spending deficit budget recession" width="733" height="1024" srcset=" 733w, 215w, 768w, 610w, 1200w" sizes="(max-width: 733px) 100vw, 733px" /></p> <hr> <h2>Federal civil servants</h2> <p>The study shows that Brazil’s problem is not necessarily the immense amount of federal servants, but the fact that their salaries stretch far beyond the country’s financial capacity.</p> <p>Federal civil servants in Brazil receive, on average, salaries that are 67 percent higher than employees of private companies. The discrepancy is enough to place 83 percent of these servants within Brazil’s top 20 percent wealthiest people. When compared to state civil servants, their salary is 30 percent larger.</p> <hr> <p><img loading="lazy" class="alignnone size-large wp-image-6671" src="" alt="brazil public spending deficit budget recession" width="1024" height="683" srcset=" 1024w, 300w, 768w, 610w, 1200w" sizes="(max-width: 1024px) 100vw, 1024px" /></p> <hr> <h2><img loading="lazy" class="alignnone size-large wp-image-6673" src="" alt="brazil public spending deficit budget recession" width="1024" height="683" srcset=" 1024w, 300w, 768w, 610w, 1200w" sizes="(max-width: 1024px) 100vw, 1024px" /></h2> <hr> <h2>Where did the money go?</h2> <p><span style="font-weight: 400;">Lack of transparency and competence are often the biggest problems surrounding the use of public revenue in Brazil. A good example of both is what happened in the city of São Paulo, Brazil&#8217;s wealthiest urban center.</span></p> <p><span style="font-weight: 400;">According to Fundação Tide Setubal, an organization focused on sustainable development, São Paulo&#8217;s municipal administration cannot account for 75 percent of the </span><a href=""><span style="font-weight: 400;">city&#8217;s budget</span></a><span style="font-weight: 400;">. Between 2014 and 2017, roughly BRL 48.6 billion were paid without the administration knowing the exact reason and destination of the money.</span></p> <p><span style="font-weight: 400;">These expenses were given vague labels. One example is the budget for healthcare, which allocated BRL 5.9 billion for the &#8220;operation and maintenance of hospital and emergency units.&#8221; But there is no information whatsoever about which units got the money, or how much each unit received. The same happened with the Education budget, where BRL 6 billion were used for the &#8220;operation and maintenance of schools and daycare centers.&#8221; Where? How much? What was repaired, bought, or improved? There&#8217;s no way of knowing.</span></p> <p><span style="font-weight: 400;">&#8220;This lack of transparency perpetuates inequality and prevents the city from really investing in peripheral areas. Regional administrations don&#8217;t even know how much or with what they&#8217;ve spent their money,&#8221; says Tomás Wissenbach, who organized the study.</span></p> <hr> <p><img loading="lazy" class="alignnone size-large wp-image-6672" src="" alt="brazil public spending deficit budget recession" width="1024" height="716" srcset=" 1024w, 300w, 768w, 610w, 1096w" sizes="(max-width: 1024px) 100vw, 1024px" />

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