Brazil is among the countries with the greatest income inequality and is home to a large contingent of poor and very poor people. The share of the richest 1% holds 50% of the national wealth, while the poorest 40% does not have more than 10% of the total wealth. The wealth of the richest 1% is more than 30 times that of the poorest 50%.
Also reflecting the fragility of the labor market, the situation of economic and social vulnerability increases. At the end of the first half of 2021, there were 14.4 million unemployed, of which one in five has not been employed for more than two years. There are still almost 30 million underutilized and 40 million informal workers.
Almost 20 million Brazilians, just under 10% of the population, currently live in extreme poverty. The poor number 60 million, representing about 30% of the population.
It is inevitable, in the face of shortages of this size, that the specter of hunger will harass broad strata of the population concentrated in the lower income strata. There are 20 million Brazilians in a situation of hunger (severe food insecurity), representing about 10% of the total population.
Another 65 million live with some food insecurity (a situation classified as daily uncertainty regarding access to food in sufficient quantity and quality). The two groups together make up 40% of the total population.
This picture of deprivation is in itself enough to convince that the country cannot do without well-designed permanent basic income programs. So large are the social gaps in Brazil that the potential for this type of program to mitigate basic needs at relatively low cost is high. Programs of this kind have spread around the world and multiplied in the pandemic, being adopted or reinforced by 166 countries. The best known of these is US President Joe Biden’s “Rescue Plan” worth US$1.9 trillion (R$10 trillion) for two years.
Brazil, with Bolsa Família, has successful, internationally recognized experience in carrying out cash transfer programs. Currently serving people in 14 million families, its current cost is R$35 billion per year, less than 0.5% of GDP. But the non-monetary correction of benefit values in recent years reduced its effect.
The same happened with the emergency aid, adopted in 2020, in reaction to the loss of income caused by the covid-19 pandemic. Pushed by Congress, the government, hesitant at first, transferred, throughout 2020, almost R$ 300 billion – 4% of GDP, to 68 million people in total. But, in the second year, it reduced values and the number of beneficiaries, letting inflation erode the benefit’s purchasing power.
In any case, in 2020, the effect of emergency aid on poverty rates was remarkable. The number of poor people fell from 25% of the population in 2019 to 20% in 2020, with estimates that it would have increased to 30% of the population without the benefit. More significant was the reduction of extreme poverty, which dropped from 7% of the population in 2019 to 3% in 2020.
In addition to the positive social effect, the circulation of these resources boosted consumption and saved the economy from an even deeper dive. Economic activity retreated 4.1% in 2020, but simulations show that, without the aid, the fall would be at least 7%. While I’ve been riding on the Congressional decision, President Jair Bolsonaro’s government approval ratings have also benefited from emergency relief.
The high cost, however, made the government reduce, in 2021, the average monthly amount of the benefit, as well as restrict the number of beneficiaries. Between April and October, the period in which the aid will have been paid, if there is no extension, around R$ 60 billion, 0.8% of GDP, were earmarked for 37 million people.
Reaching fewer beneficiaries and transferring, on average, R$ 250, eroded by double-digit inflation in mid-2021, with an increase of more than 15% in food, the emergency aid was not able to hold the reduction in poverty recorded in 2020. Nor did it hold down consumption in the economy as a whole, nor did the president’s popularity.
The good results of the emergency cash transfer program encouraged Bolsonaro to commit to the creation of a new Bolsa Família, capable of supporting, in addition to the beneficiaries, its popularity ratings. The new social program awaits the creation of fiscal spaces to be launched.
To serve 17 million families, with an average value of R$300 a month, around R$60 billion a year would be needed. The government’s intention is to implement the new program, called Auxílio Brasil, still in November this year, escaping the restrictions imposed by the electoral rules that will be valid in 2022, the year of general elections, including for the presidency. A controversial increase in the IOF (Tax on Financial Transactions) was defined by the government to fund Auxílio Brasil, in the final two months of 2021.
For 2022 onwards, the resources destined to cover the expenses with the Auxílio Brasil depend on the approval of the reform of the Income Tax. It is with part of the new taxation of profits and dividends that the government plans to cover the costs of the program. After being approved by the Chamber, the PEC (Proposed Amendment to the Constitution) for the reform of the IR awaits processing in the Senate.
Specialists in social programs have criticized Auxílio Brasil. In short, critics say, the government intends to replace a tried and tested program, with a well-focused target audience and objectives, and low costs for the benefits it provides, with a set of initiatives for dispersed audiences and purposes.
There are other suggestions for simpler and less controversial income transfer programs. Economist Débora Freire and colleagues, professors at Cedeplar, the economic studies center at UFMG (Federal University of Minas Gerais), for example, designed, in 2020, a well-structured permanent basic income program.
In the simulations carried out, a program that would benefit the poorest 30% – that is, a contingent of 30 million families -, with a monthly value of R$ 217 (in 2020 prices), would cost R$ 74 billion per year, the equivalent to 1% of GDP. This amount would be financed by an increase in the income tax of the upper classes, with a neutral fiscal impact.
Even with the transfer of a portion of income from the richest to the poorest, according to economists from Minas Gerais, the economy as a whole would also benefit. With the program, each R$1 transferred from the top of the income pyramid to the base would result in R$0.52 in GDP in 2022, and R$1.55 accumulated until 2040.