Bolsonaro makes bid for support with new welfare program

. Jun 15, 2020
Bolsonaro makes bid for support with new welfare program Photo: Nelson Antoine/Shutterstock

The economic team of President Jair Bolsonaro took office preaching the reduction of the state’s role in financial matters and cutting back spending in myriad areas. It came as some surprise, therefore, when ultra-liberal Economy Minister Paulo Guedes announced last week the creation of a broad cash transfer program entitled Renda Brasil (Income Brazil), billed as an extended version of the globally lauded Bolsa Família program. However, specialists see severe contradictions in the social welfare plan, speculating that the announcement may be an empty political ploy.

The announcement of the Renda Brasil program came as Mr. Guedes declared the government’s emergency coronavirus aid plan would be extended for a further two months, with the value of the benefit

cut in half. In response to the pandemic, the administration paid a BRL 600 (USD 116) monthly salary to low-income and informal workers for three months, and the Economy Minister declared his intention to extend this program for two more months, with the base payment dropping to BRL 300. The change requires congressional approval.</p> <p>Though it was initially reluctant to hand out money to low-income Brazilians — Mr. Guedes instead called for macroeconomic reforms and suggested <a href="">cash transfers would discourage</a> recipients from wanting to return to work — the government quickly realized that the program offered them significant, albeit temporary, <a href="">electoral gains</a>.</p> <p>Despite the president&#8217;s approval ratings tanking among wealthier Brazilians, his overall popularity has remained stable, largely due to support from informal workers receiving the emergency coronavirus salary. With this allegiance tied to the receipt of a monthly benefit, the government is now moving to continue payments of a program it opposed in the first place.</p> <h2>Social welfare, or a PR exercise?</h2> <p>The announcement of the Renda Brasil program is another maneuver to this effect, in an attempt to hold on to the fleeting support of the government&#8217;s new beneficiaries. Explained in vague terms as essentially a broader version of the Bolsa Família, making informal workers eligible for cash transfers as well as very low-income families, specialists are skeptical about how this program would be put in place, if at all.</p> <p>&#8220;If it is simply transforming Bolsa Família, broadening the universe of people who can receive the benefit, then it&#8217;s something which could be seen as thoroughly positive,&#8221; says Laura Carvalho, associate professor of economics at the University of São Paulo, to <strong>The Brazilian Report</strong>. &#8220;These programs have a <a href="">multiplying effect on the economy</a>, both in terms of inequality and macroeconomics. You spend one dollar and you get much more than one dollar in return when you look at GDP, this money comes back in taxes.&#8221;</p> <p>However, the problem, Ms. Carvalho explains, is that such programs must be accompanied by financing plans and changes to the tax system in order to create a fairer, universal network of social protections. &#8220;The administration does not seem to be concerned about that. The current income tax system is regressive,&#8221; she says.</p> <p>Her view is that Mr. Guedes&#8217; announcement is more about &#8220;selling the idea that the government cares about the poor,&#8221; something which, Ms. Carvalho notes, does not stand up to scrutiny. &#8220;Before the pandemic, the Bolsa Família program was <a href="">struggling like never before</a>. And last year, Paulo Guedes tried to reduce the value of the BPC [Continuous Payment Benefit, consisting of paying one minimum wage to senior citizens and people with disabilities who cannot financially support themselves].&#8221;</p> <p>Daniel Duque, researcher at the Brazilian Institute of Economics, explains that the most likely scenario would be for the Renda Brasil program to take the form of a negative income tax. &#8220;Informal workers would declare how much they earn, and the benefits they would receive would be inversely proportional to their total income,&#8221; he tells <strong>The Brazilian Report</strong>.&nbsp;</p> <p>This, he notes, creates a worrying encouragement for <a href="">tax evasion</a>. &#8220;If you create an incentive for people to declare less on their income tax returns, you&#8217;re going to get a lot more informal transactions which will not be overseen by the state, you create a reduced role of banks in the economy,&#8221; he says.</p> <p>&#8220;Workers will give priority to transactions in cash, because they won&#8217;t need to declare them and the government will have no way of verifying that they took place, and then the workers will earn more from the negative income tax.&#8221; He points out that this could also force people to accept lower salaries for informal positions in exchange for higher benefits.&nbsp;</p> <h2>Basic income or Income Brazil</h2> <p>Another complaint from economists is that the proposed Renda Brasil project could smother ongoing congressional discussions about implanting a <a href="">Universal Basic Income (UBI)</a> in Brazil. There are currently multiple proposals in the legislature which concern making the emergency coronavirus aid permanent, in a transition toward a nationwide UBI. &#8220;This talk of Renda Brasil confuses these debates,&#8221; says Ms. Carvalho.</p> <p>&#8220;The Friedmanite proposal of a negative income tax aims at substituting services from the state. Instead of having a national minimum wage and other social protections, the state steps back and pays this benefit in return,&#8221; she says. &#8220;Meanwhile, a universal basic income isn&#8217;t a substitute, it&#8217;s a supplement.&#8221;</p> <p>The University of São Paulo professor reckons that such an initiative would create what she calls a &#8220;voucher&#8221; for private services, no longer offered by the state. &#8220;When the government doesn&#8217;t provide social protections, paying out this benefit will push poorer populations to spend it on private health, education, and so on,&#8221; she explains.</p> <p>Mr. Duque points out that the format being touted for the Renda Brasil program would not be classed as a universal basic income. &#8220;With a UBI, you don&#8217;t have a difference in benefits in accordance with income. You can add in exclusive mechanisms to a <a href="">basic income program</a> but it’s not linked to income.&#8221;</p> <h2>Trading austerity for popularity</h2> <p>Among the weightiest backers of Jair Bolsonaro&#8217;s 2018 presidential bid were Brazil&#8217;s financial elites. While not placing any particular faith in Mr. Bolsonaro himself — who declared to &#8220;know nothing about the economy&#8221; — they were buoyed by his choice of financial czar, the hyper-liberal Chicago School-educated Paulo Guedes, and his strict platform for unwavering austerity and a night-watchman state.</p> <p>Crucially, after a grand overhaul of almost all government positions, Mr. Bolsonaro also chose to keep a hold of Treasury Secretary Mansueto Almeida, a symbol of economic severity in the country. Such is his commitment to austerity that a proposal in Congress to impose <a href="">strict spending on state governments</a> was widely nicknamed the &#8220;Mansueto Plan.&#8221;</p> <p>On Sunday, however, Mr. Almeida announced that he was <a href="">leaving the government</a>. This, along with the as of yet uncertain Renda Brasil plan, is another indication that Mr. Bolsonaro&#8217;s economic team may be shifting away from austerity, turning its back on financial elites in a bid for electoral support from other sectors.

Euan Marshall

Originally from Scotland, Euan Marshall is a journalist who ditched his kilt and bagpipes for a caipirinha and a football in 2011, when he traded Glasgow for São Paulo. Specializing in Brazilian soccer, politics and the connection between the two, he authored a comprehensive history of Brazilian soccer entitled “A to Zico: An Alphabet of Brazilian Football.”

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