Brazil can expand social protections while avoiding budget crisis

. Oct 27, 2020
Brazil can expand social protections while avoiding budget crisis, say researchers Poor neighborhood in Planaltina, Goiás. Photo: Marcos Casiano/Shutterstock

The severe impacts of Covid-19 on vulnerable populations has reignited a longstanding debate on social security in Brazil. Though initially repelled by the administration of President Jair Bolsonaro, the federal government’s coronavirus emergency salary proved to be essential in preserving the income of vulnerable populations and sustaining consumption, avoiding what would have been an even more severe economic collapse due to the pandemic.

And crucially it has opened the eyes of politicians from all ends of the political spectrum to the need to extend Brazil’s social protection network.

The emergency coronavirus salary initially paid out BRL 600 (USD 106) each month to informal workers and the unemployed, and 72 percent of the population now hope the program will be extended into 2021. However, all proposals to this end come up against one huge stumbling block: the collapse of Brazil’s public accounts.

</p> <p>Indeed, the much lauded emergency aid program came in at an estimated cost of BRL 50 billion per month — more than an entire year of existing cash-transfer initiative Bolsa Família. Even with payments being halved to BRL 300, it is highly unlikely the program will fit into the 2021 budget, with public debt nearing the rate of 100 percent of Brazil&#8217;s GDP.</p> <p>While proposed solutions have been shot down by the government due to their unpopularity — such as implementing a tax on financial transactions, or reshuffling benefits that would constitute, in President Bolsonaro&#8217;s words, &#8220;taking from the poor to give to the paupers&#8221; — researchers from think tank Centro de Debates de Políticas Públicas (CDPP) have devised their own alternative. The <a href="">Social Responsibility Program</a>, unlike a traditional Universal Basic Income that would grant a flat benefit to every citizen, would pool together a series of existing benefits into one monthly stipend varying according to each family&#8217;s income. It would also involve the creation of savings accounts that could be withdrawn in emergencies, such as unemployment.</p> <p>The outcomes expected by CDPP’s team are surprising. By simply redesigning existing policies, they believe that it would be possible to slash poverty levels by up to 24 percent, as well as including 95 percent of vulnerable families in Brazil under the social protection umbrella.&nbsp;</p> <p>To learn more about this proposal, we spoke with Vinicius Botelho, a researcher at the Brazilian Economics Institute of think tank Fundação Getúlio Vargas (FGV-Ibre), who was involved in developing the program. The interview is transcribed below.</p> <p><strong>Some economics support the idea of an unrestricted Universal Basic Income (UBI). Could Brazil implement something like that with its current fiscal situation?&nbsp;</strong></p> <blockquote class="wp-block-quote"><p>The UBI, with its original concept of transferring resources to the entire population regardless of any characteristics, will diminish social security policies&#8217; power to reduce poverty. Today in Brazil we have the Bolsa Família program, which is based on a federal database of 27.5 million families, or roughly 75 million people. They make up the poorest third of the Brazilian population and half of them receive Bolsa Família payments. Based on reports by the World Bank, Brazil is one of the countries that does the best job in focusing welfare policies on low-income populations. That means that we are able to end poverty in a more efficient way than other countries. When we ignore all this experience and begin something new, by distributing money to the population and respecting the current budget constraints, we would only be able to pay a meager amount to people that will make no difference.</p><p>On the other hand, it is very hard to stick to monthly stipends paid by Bolsa Família — which are around BRL 190 per family — under our current fiscal reality. That’s why we came up with a proposal that considers the fiscal situation and looks at the operational aspect of a social policy. Right now, the debate is focused on how to afford it, but not on how to design it. And international experiences show us that the way you spend the resources matter when it comes to reducing poverty. </p></blockquote> <p><strong>You estimate the Social Responsibility Program would require a budget of BRL 57 billion. Considering that informality is growing in the Brazilian labor market, do you think this will be enough?&nbsp;</strong></p> <blockquote class="wp-block-quote"><p>We designed the program to be flexible when it comes to the budget. Currently, Bolsa Família’s budget is defined by law but the Executive branch has the power to adjust it. We are proposing something different. Based on 2020’s data, we still aren&#8217;t clear on what the situation will be in 2021, but the program’s design is adaptable, so we can accommodate even temporary situations where we have a temporary increase in poverty. </p></blockquote> <p><strong>You say that the Social Responsibility Program could support up to 95 percent of the vulnerable families in Brazil. But you drafted it based on 2018 data. How does it stand after the pandemic, when millions joined the database to receive federal benefits?</strong>&nbsp;</p> <blockquote class="wp-block-quote"><p>In 2020, the pandemic even had an effect on data collection, so we don’t know exactly how inequality and poverty have evolved in this period. There is a chance that <a href="">they have diminished</a>,  but only because of a program that costs over BRL 45 billion a month. Our program is actually designed for what comes after the emergency, to replace emergency programs and to improve the social protection network. This improvement would come from updating the concepts of low income used for existing benefits.</p><p>Low income is a familiar concept, but these programs use it at an individual level, because that’s what was available when they were created, the government didn’t have the tools to fully measure a family&#8217;s income, only individual paychecks. The national database for federal benefits, created in 2001, now allows that. So, we are proposing an update of these benefits for this new scenario, which may bring more coverage to vulnerable families that have a large part of their incomes based on informal work. Those families are often above the poverty line, but they can easily fall below it. The idea is to provide them with savings accounts and benefits that complement each other. For instance, when a family loses income, it is not only protected by a basic income, but by an additional savings account.   </p></blockquote> <p><strong>But you propose that, on average, the savings account will provide BRL 39 per month for each family. Will this small amount be enough to support them?</strong></p> <blockquote class="wp-block-quote"><p>Savings will pile up over time. Informality in the labor market is something very distinct, it involves many situations, from workers that are not formally registered to those who are working autonomously. And even though we think that informal workers are fired more often, sometimes they are not; they remain employed for up to two years. That means they would have 24 times this amount (BRL 39) in a moment of need. Plus, this family is entitled to a basic income. If their income from work drops, the stipend goes up. The savings account would be a sort of a second benefit. These are complementary mechanisms. </p><p>It’s important to remember that families already declare their incomes to receive Bolsa Família payments, even the money they receive from informal work. If they didn&#8217;t, the program’s cost would rise by 60 percent. And what incentive do they get for that? Nothing. In fact, for every Real they declare as income, their benefits are proportionally decreased.</p><p>We offer instruments that allow people to fulfill their duty to declare their income, but receive other products in return, such as the savings accounts, which work exclusively for families that have an income. Nowadays we have programs for poor families, so the poorer you are, the higher your stipend. A labor benefit works the other way round, normally the more you earn, the more you get. Take pensions as an example, the higher your wage, the higher your pension. What we offer is something that matches these realities. We are correcting the distortion of the current labor benefits that are focused on formal workers.</p></blockquote> <p><strong>You also ran simulations considering a BRL 100 billion budget for the program. Where would this money come from?&nbsp;</strong></p> <blockquote class="wp-block-quote"><p>There are many decisions that could make room in the budget but this is more of a political decision than a technocratic one. What we can technically use as a base is the budget that is already available for social programs. We ran other simulations with money that could come from slashing other expenses, such as personnel expenses, but it is not up to us to decide where to make cuts. The idea of simulating the project with a BRL 100 billion budget is saying that it is possible to do more if we had another BRL 43 billion to spare. But the main message is that, while we are waiting for consensus on finding another BRL 43 billion, we’re missing the opportunity of doing something now with the BRL 57 billion that we already have available.

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Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Before joining The Brazilian Report, she worked as an editor for Trading News, the information division from the TradersClub investor community.

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