ONU: Budget adjustments can be made without harming the poorest in Brazil, says World Bank

Budget adjustments can be made without harming the poorest in Brazil, says World Bank

Posted in 7/20/2016 updated 7/20/2016

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The budget adjustments can be made without harming the poorest 40% of the country, according to the World Bank. According to the recent Systematic Diagnosis ofCountry (SCD, the acronym in English) for Brazil, the programs and services geared to that portion of the population cost only 7% of gross domestic product (GDP) andpromote tax benefits.

Programs and services geared to the poorest receive resources equivalent to 7% of GDP. Photo: EBC

Programs and services geared to the poorest receive resources equivalent to 7% of GDP. Photo: EBC

A new World Bank document showed that, in Brazil, the gap between public expenditure and revenue will need to be closed at some point, the risk of the debt out of control, affecting the economy and the services to the population.

Government primary expenditure correspond to 37% of gross domestic product (GDP), while the primary recipes add up to 36% of gross domestic product (GDP). Theinterest payments, unbilled primary expenditure, accounted for 12.5% of GDP in 2015.

The budget adjustments can be made without harming the poorest 40% of the country. According to the recent Systematic Diagnosis of Country (SCD, the acronym in English) for Brazil, the programs and services geared to that portion of the population cost only 7% of GDP, compared with the 5% spending on subsidies given to companies, and make a difference to those who need it most.

Already the subsidies and the current pension system benefit the rich more than thelow income population, says the document. That turns them into strong candidates for restructuring.

Today, almost a third of public spending (28%) goes to social security. "Based on data from national survey by Household sample (PNAD) of 2014, we see that spending on welfare leave slightly more unequal income distribution", explains Martin Raiser,Director of the World Bank for Brazil.

An important issue is the contribution time required to receive the full salary versusthe period in which retirees receive benefit: on average, 35 and 22 years, respectively.

In General, the Brazilians begin to make contributions to the pension system to 25, retire at the age of 60 and have a life expectancy of 82 years. In addition, the contribution of the general scheme is, excluding simple and rural plans, between 28% and31% of wages, while the pension for a person with these characteristics is equivalent to approximately 85% of the last salary.

Among the ways to alleviate the problem, is to increase the time of contribution. For example, workers who retire at age 65 years – if you have good health, instead of the 60, has valuable experience and knowledge to pass on to future generations. "Theeffect on people's lives can be beneficial and the fiscal impact is 100 percent positive," Raiser.

Low-cost financing

The Brazil spends on subsidies to companies the equivalent of 5% of GDP. Although the value is smaller than the dedicated to pensions and retirements, also just givingadvantage to the richest.

That's because the beneficiaries of most subsidies are not small, managed by low-income people, but large, who hire workers more well-qualified and not necessarily generate quality jobs for the poor.

Taking into account that the allowances are given at low cost – in a country where the cost of financing is high – and have limited availability, the new document leads to the question: are they going to who really need?

Already the programs and services to the poor, who receive the corresponding to7% of GDP, promote real benefits. Enter into this account initiatives such as Bolsa Familia, in addition to primary and secondary education and public health. So, the newreport points out the need to cut, but in a more efficient use of resources to such services, in order to improve them continuously