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Should Brazil give a universal basic wage in response to Covid-19?

. Mar 19, 2020
Should Brazil give a universal basic wage in response to Covid-19? Photo: RaspberryStudio/Shutterstock

In the U.S. the Donald Trump administration has announced measures to relieve the effects of Covid-19 on the economy, such as sending checks to affected citizens, offering a deferral in income tax payments, and the possibility of a USD 1 trillion stimulus package. More to the south of the Americas, Brazil’s Economy Minister Paulo Guedes announced his own BRL 147 billion package to fight the virus’s spread in the country.

Brazil recorded at least four Covid-19 deaths and, according to health departments, almost 500 Covid-19 infections have been confirmed. And things will get much worse before they get any better—with Health Minister Luiz Henrique Mandetta asking Brazilians to prepare themselves for “some 20 rough weeks ahead.”

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economic situation is not so different. Despite the government dedicating BRL 147 billion to fight the effect of Covid-19 on the economy, only BRL 31.8 billion of this total can be considered &#8220;new money.&#8221; The majority of the measure consists of &#8220;rearranging&#8221; funds, as <strong>The Brazilian Report</strong> <a href="https://brazilian.report/business/2020/03/17/brazil-throws-money-at-covid-19-but-will-the-plan-work/">published on Tuesday</a>.</p> <p>According to Fundação Getulio Vargas economist and researcher Daniel Duque, the most affected portion  of the population will be <a href="https://brazilian.report/newsletters/brazil-daily/2020/03/18/window-protests-voters-bolsonaro-out-emergency-basic-income/">informal workers with per capita household income of up to BRL 692 a month</a>. “The government does not know who these people are, as they are not registered with the social security system and they don&#8217;t receive benefits,” explains Mr. Duque.</p> <p>To solve this problem, Mr. Duque suggests a <a href="https://brazilian.report/business/2019/10/03/evolution-brazil-purchasing-power/">transitional </a><a href="https://brazilian.report/business/2019/10/03/evolution-brazil-purchasing-power/">basic minimum income to help these people</a>. This aid, he explains, is the fastest way to reach these informal workers but cannot consider the person&#8217;s income, being focused on distributing a value that can help cover the costs of their daily lives.</p> <p>“Of course, it is impossible to reach the entire population, but if we think that for about 80 percent of that total, a minimum monthly income of BRL 300, for six months, would cost 3 percent of the GDP. It is a significant amount, but it is the type of measure needed at the moment,” affirms Mr. Duque.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/1618010"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p>He spoke with <strong>The Brazilian Report</strong> about the measures necessary to guarantee that a big portion of the Brazilian population can overcome the economic effects of the Covid-19 pandemic.</p> <p>Disclaimer: this interview was edited for brevity and clarity.</p> <p><strong>Why should we create a transitional universal basic income to overcome the Covid-19 pandemic?</strong></p> <blockquote class="wp-block-quote"><p>It is a way to reach the part of the population that will be most impacted by the Covid-19 crisis, which are informal workers with per capita household income of up to BRL 692 [per month]. In the coming weeks, we will see a very dramatic situation, and it will not be possible to help these people if the policies adopted focus only on those who are losing income. The government does not know who these people are, as they are not registered with the social security system of the Bolsa Família [welfare benefit] register.</p></blockquote> <p><strong>How much would this minimum income cost?</strong></p> <blockquote class="wp-block-quote"><p>Brazil has a GDP per capita of BRL 3,600 per month. Of course, it is impossible to reach the entire population, but if we think about 80 percent of that total—a minimum monthly income of BRL 300, for six months—it would cost 3 percent of the GDP. It is a significant amount, but it is the type of measure needed at the moment, a type of policy that does not consider the person&#8217;s income and distributes a value that can help to cover the daily lives of this portion of the population. This way is the fastest to reach these informal workers.</p></blockquote> <p><strong>So do you suggest granting this transitional income to the entire population?</strong></p> <blockquote class="wp-block-quote"><p>Of course we can create exclusion criteria, for example, income tax returns. But we cannot be looking to register the loss of income. Obviously, it would be good to have a universal register for every Brazilian, but this would delay taking assistance to people who will need this money as soon as possible.</p><p>These people are paid daily, unlike wage earners, who will begin to feel the impacts of this crisis in the following month. It is easier to create exclusion criteria to remove people who do not need such assistance from the list than to develop standards that justify the access of certain people to the transitional minimum income.</p></blockquote> <p><strong>Why not make a policy more focused on a specific group?</strong></p> <blockquote class="wp-block-quote"><p>The transitional minimum income is a costly policy, with a perennial effect that could be better if it were focused, helping more people. But the most affected people will be workers for whom the government cannot monitor their incomes. It is a particular situation that justifies this more universalist path. I don&#8217;t know what the way to finance this would be, whether by raising taxes or issuing debt, but it is a moment that requires this type of policy.</p></blockquote> <p><strong>What is your opinion about the measures taken by the Minister of Economy, Paulo Guedes, to confront the Covid-19 pandemic?</strong></p> <blockquote class="wp-block-quote"><p>They go in the right direction, but they are timid because they have little increase in spending. What the government is doing is to advance benefit payments. The tools that the government has have been insufficient, which are retirement benefits, social security, severance funds, and Bolsa Família. Those who are protected by social security and Bolsa Família, for example, are not the most vulnerable in the situation we are facing.</p><p>Conservative economists are saying that the moment requires forgetting the fiscal and debt dynamics limit a little, to focus on increasing public spending. Paulo Guedes doesn&#8217;t seem to have bought into this idea.</p></blockquote> <p><strong>Should the public spending cap be relaxed due to the atypical scenario that Brazil is experiencing?</strong></p> <blockquote class="wp-block-quote"><p>No, because the spending cap is a long-term policy that is flexible enough for the government to act without changing its goals. Currently, the government&#8217;s spending policy is BRL 25 billion below the budget limit. It is also necessary to remember that the spending ceiling law excludes expenses motivated by a situation of public calamity from the calculation.</p></blockquote> <p><strong>Are there any other transitional measures that the federal government should take at this point?</strong></p> <blockquote class="wp-block-quote"><p>Many argue that the government must respond to moments of crisis with investments. But a measure like that, at this point, would have no effect. We are living in a scenario in which people should not interact, so making investments would make the situation worse.</p><p>And reducing economic activity would be desirable, as it would show that people are not interacting. What the government must do is wait for the economic activity to drop and help people to maintain themselves until this situation is over.</p></blockquote> <p><strong>What did you think of the BRL 200 “corona-voucher” that will be given to informal workers for the next three months?</strong></p> <blockquote class="wp-block-quote"><p>It is an attempt to do something more universal. But we would have to know more about the details of this proposal.</p></blockquote> <p><strong>How can economic activity recover after Brazil overcomes the Covid-19 pandemic?</strong></p> <blockquote class="wp-block-quote"><p>Then it will be time to use policies to boost demand and make investments. But we have to wait to find out what the post-pandemic scenario will be. It may be that entrepreneurs return to invest.

 
Brenno Grillo

The Brazilian Report's correspondent in Brasília, Brenno has worked as a journalist since 2012, specializing in coverage related to law and the justice system. He has worked for O Estado de S. Paulo, Portal Brasil, ConJur, and has experience in political campaigns.

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