Opinion – Marcos Mendes: The poor and the public budget

The president-elect has repeated that “it is necessary to include the poor in the public budget”. To what extent are they excluded?

The IMF created a fiscal statistic that classifies spending by “function of government.” The category “social protection” comes close to what would be the participation of the poor in the budget. There are expenses with: elderly, sick, disabled, pensioners, families, children, unemployed, housing, social protection and excluded populations.

Among 58 countries for which there are data for 2019, Brazil stands out as fourth, with 14.3% of GDP, behind only San Marino (18.2%), Spain (15.8%) and Norway (15.6%).
Therefore, we already spend a lot on “social protection”. As this data is from before the pandemic, and since then there has been an increase in the Auxílio Brasil from BRL 32 billion to BRL 106 billion, we are currently spending even more.

This does not guarantee that the poor are fully included in the budget. It may be that our spending on “social protection” does not reach them.

Breaking down the Brazilian data into the different categories of “social protection”, we observe that almost 70% refer to Social Security (elderly people and pensioners): we have the fifth highest social security expenditure among the 58 countries in the database. Several studies—including the World Bank’s “A Fair Fit” report—show that pension spending mainly benefits the middle class, not the poor.

When we exclude social security spending from the account, we are still among the 20% that spend the most on other “social protection” policies. But there are also programs in this set that do not reach the poorest, such as the salary bonus and the family allowance.

The most comfortable way of trying to benefit the poorest is to increase spending on programs that would be able to serve them, not touching other budget expenses, whether they are aimed at “social protection that does not reach the poor” or other purposes. Thus, it would not be necessary to take advantage of anyone, and political resistance would be less.

But this strategy comes at a cost to the poor. It requires raising taxes, public debt or inflation. The current tax system excessively punishes the poor. Inflation is a poverty-making machine. Debt will increase interest expense, paid to people who have savings and who are obviously not the poorest.

Therefore, a serious debate about including the poor in the budget must start not by increasing expenditures, which are already high, but by replacing the poorest quality with effective programs to reduce poverty.

The first in line for exclusion should be parliamentary amendments — all of them, not just the rapporteur. In an article on Blog do Ibre, co-authored with Fabio Giambiagi and Paulo Hartung, we show that there is not a single argument that gives technical support to these expenses. They feed corruption and impoverish Brazil.

Along the same lines, it is necessary to reduce fiscal, tax and financial benefits that consume public resources, benefit the rich and reduce the economy’s growth potential. An income tax reform that makes it more progressive would also help.

Another line of action should be the reform of spending on “social protection”. Social Security is still expensive and maintains privileges, such as those of professions that retire early. Outdated social programs need to give way to more effective ones.

The transformation of Bolsa Família into Auxílio Brasil, despite having almost tripled the amount spent, worsened the ability to reach the poorest. As shown by Pedro Nery in the newspaper O Estado de S. Paulo on 11/15 and Cecilia Machado in the Sheet from 7/11, families are encouraged to divide to receive more; a single individual receives the same as a single mother with many children; and those whose income is BRL 0.10 above the poverty line receive nothing, while those who are BRL 0.10 below receive BRL 600. The design has to be redone before putting even more money into the program.

This is the serious debate that will effectively put the poor on the budget. Asking permission to spend more, without correcting the current distortions, will only aggravate our economic mediocrity and serve the interests of the non-poor.