Middle class will feel government measures before poorer families

The poorest, whose vote President Jair Bolsonaro (PL) is trying to win in his quest for a second term, may take longer to experience an improvement in life with the benefit packages launched by the government on the eve of the election.

The PEC (proposed amendment to the Constitution) “Kamikaze”, which creates and expands a series of social benefits or programs less than three months before the election, was approved this Wednesday (13) by Congress.

Among the main measures is the expansion of Auxílio Brasil, from R$ 400 to R$ 600, until the end of the year and to eliminate the waiting list of the program. Expanding the Gas Aid to R$120 and creating a benefit of R$1,000 for truck drivers are also part of the text.

The government has also mobilized to cut fuel taxes and try to curb inflation. In June, the Chamber of Deputies concluded the vote on the project that limits the rates of ICMS (state tax) levied on fuel, energy, transport and communications.

In the opinion of economists interviewed by the Sheethowever, it is necessary to relativize the effects of Bolsonaro’s pre-election package and there is no guarantee that it will increase the well-being, especially of the poorest, until October.

In the short term, inflation will fall, with the cut that had already occurred in the energy banners and now, in gasoline, says the specialist from FGV (Fundação Getulio Vargas) André Braz. “This will make the July inflation have a fall and also forces us to revise the forecast for the year – leaving the house of 9% to 8%”, he says.

“Energy and gasoline weigh 10% in the IPCA [a inflação oficial]. If the government cuts taxes sharply, inflation falls.” He recalls, however, that gasoline is a luxury good, whose reduction will be felt, above all, by the middle and upper classes.

According to Ipea, the disaggregated data reveal that, for lower-income families (earning up to R$900 per month), the greatest inflationary pressures in the last 12 months up to May resided in the food and beverage groups.

They weighed on high households in items of great consumption — such as carrots (116.4%), potatoes (54.3%), chicken (22.7%), eggs (18.4%), milk (29.3% ), pasta (19.3%), French bread (15.61%) and soybean oil (31.3%).

“As for higher income families, the pressure points are, above all, in the transport group, reflecting the increases in fuel (29.1%), in addition to the increase in transport by application (64.3%), in taxi (12.3%) and on airline tickets (88.7%)”, says the Institute of Applied Economic Research.

“Those who are more humble feel the inflation of food, but there is no guarantee that food prices will be lower, as they depend on a number of factors, such as international prices and quotations of agricultural inputs.”

Still, even in the best-case scenario, with inflation for the year hitting 7.5% or 8%, it will be more than twice as high as the 2022 target of 3.5%, says Braz.

He also points out that the bill will arrive, and the drop in revenue expected with the ICMS cut means that the public services that the population demands and that are already evaluated as bad – such as health, education and public security – could still get worse. The government would therefore have to hope that the bill arrives only after October.

The chief economist at MB Associados, Sergio Vale, also has doubts about the impact of benefits on the electoral scenario.

For Vale, the poorest people should benefit from the increase from R$400 to R$600 in Auxílio Brasil and a possible drop in food prices, helped by the next harvest.

He says he believes, however, that the population tends to see the aid as a continuation of the Bolsa Família, and the gain given now will probably not be taken away in the case of victory for former President Lula, who leads the polls.

“If Lula manages to fit in this speech, that he will maintain these expenses and not end them at the end of the year, I don’t see Bolsonaro managing to get votes with that. , worsens the exchange rate and inflation and ends up maintaining the erosion of income.”

He also assesses that, even though inflation may be around 8% at the end of the year, the population will be suffering the consequences of high prices during the election.

“Everything that is being done does not give time to reverse the damage already done. And the point is that the opposite effect, which hits the exchange rate and pressures inflation, and the very short timing may not be able to help Bolsonaro’s campaign.”

Claudio Considera, from Ibre (Instituto Brasileiro de Economia, from FGV), adds that the increases to R$600 in Auxílio Brasil have the immediate effect of putting more resources in the hands of families, but the level of indebtedness is so high, and the purchasing power, so depressed, that the measure should not have such a big effect on economic activity.

Last Monday (11), data from the Serasa Experian Consumer Default showed that Brazil broke the record with 66.6 million defaulters in May – the highest level since the beginning of the historical series, in 2016.

“Other measures, such as Auxílio Gás, reduce the needs of families, but should not generate new demand. Truck drivers also lost a lot with the drop in activity and the increase in costs, but the government should be able to replace just a little of their losses “, says Consider.

He recalls that even recent stimulus measures, from the first half of the year, such as the withdrawal of the FGTS and the anticipation of the 13th salary for retirees and pensioners, can represent a short blanket.
Thought by the government as pills to stimulate the economy, both should have more conservative destinations.

FGV heard 1,500 people, in its survey, about the destination they should give to the resources and concluded that two-thirds intend to use the money to pay off debts and to save.

The government’s expectation was that the extraordinary withdrawals would move around R$ 86.7 billion, with R$ 30 billion from the FGTS and R$ 56.7 billion from the anticipation of the 13th of retirees and pensioners.

In the case of job creation, economist Bruno Ottoni, from IDados, believes that it is unlikely that the PEC will have any effect before the election, even though work has reacted more quickly in recent quarters than anticipated.

“The labor market usually reacts with a little lag to economic activity. So, even if the PEC has effects on GDP, it would still take a few months to affect employment.”

He also recalls that if the PEC generates a worse fiscal expectation, this may encourage interest rate hikes. “And higher interest rates would tend to reduce economic activity and employment, in the medium term.”

The chief economist at Itaú Unibanco, Mario Mesquita, says that the more pressured external environment prevents the appreciation of the real and the stabilization of the dollar below R$5.

“The risk has also gone up since the beginning of the pandemic. Yes, it is necessary to implement stimuli when there is a shock, as in the health crisis, but the country has already entered the pandemic with high debt and the risk has become higher.”

According to estimates by Itaú Unibanco for 2023, if the reduction in fuel taxes and the PEC measures become permanent, a primary deficit of -1.5% is estimated and a debt of 83.5% of GDP (compared to -0.1 % and 81.8%%, respectively, if the measures are temporary).

The bank revised its growth forecasts for Brazil in 2022, from 1.6% to 2%, and for next year, kept at 0.2%. As for the unemployment rate, the expectation is to end 2022 at 10.5% and at 11.2% next year.

“In economic activity, the IDAT (Daily Index of Economic Activity), from Itaú, showed strength until April, but with signs of moderation, and the consumption of goods seems to lose some momentum”, says the economist.

BILLION PEC AND FUEL PL | MAIN MEASURES

LIMITED ICMS RATE

• PLP 18 transforms fuel, energy, telecommunications and transport into essential goods. As a result, they now have a maximum limit of 17% and 18% of ICMS. In some states, like Rio de Janeiro, this means cutting half the rate. Bolsonaro sanctioned the ceiling for ICMS, but vetoed the recomposition for health and education

BRAZIL AID OF BRL 600

• Expansion from R$400 to R$600 this year and the government promises to eliminate the queue
• The total cost is BRL 26 billion

TRUCKERS WITH ASSISTANCE OF BRL 1,000

• Benefit of BRL 1,000 will be paid to self-employed truck drivers registered with ANTT (National Land Transport Agency) until May 31
• The cost is BRL 5.4 billion

GAS ALLOWANCE OF BRL 120

• The amount of the benefit paid every two months will double, to about R$ 120 per bimester
• Currently, the benefit is 50% of the average value of the 13 kg cylinder (considering the average of the last six months)
• The cost of the measure is R$ 1.05 billion

MONEY FOR FREE TRANSPORTATION FOR THE ELDERLY

• Authorize the transfer of funds to guarantee free access to the elderly in municipal and intercity public transport in metropolitan regions. Gratuity, provided for by law, is already in effect today
• The cost of the measure is R$ 2.5 billion

TRANSFER OF FUNDS TO THE ETHANOL SECTOR

• Transfer to states to compensate for cuts in tax rates on ethanol and maintain the competitiveness of the fuel compared to gasoline
• The cost of the measure is BRL 3.8 billion

STATE OF EMERGENCY DECREE

• Enables the payment of new benefits, such as assistance for truck drivers, even in an election year
• State of emergency aims to protect the government in cases of legal challenges for violating electoral legislation.