IBRD suggests changes on social security and subsidies

29 de julho de 2016

For the World Bank, Brazil should seek fiscal adjustment with an increase in the contribution period and reduction in subsidies for companies, as to avoid impact on low-income population.

São Paulo – In order to balance out public accounts without impacting the low-income population, Brazil should consider increasing the contribution time of the social security pension system and reducing subsidies to certain sectors of the economy, advises the World Bank in an article published this Friday (29) in its website.

According to the bank, primary expenditures account for 37% of the Gross Domestic Product (GDP), while primary revenues amount to 36% of the GDP, and this gap needs to be closed so as to prevent the debt level from getting out of control. The payment of debt interest, which isn’t included in primary expenditures, amounted to 12.5% of the GDP last year.

The organization believes it’s possible to reach a fiscal adjustment without affecting the poorest 40% of the population. According to the bank, programs and services focused on this segment of the population amount to 12.1% of the GDP, while 16.1% of the GDP are spent on segments that aren’t considered poor. The data come from a report named Systematic Country Diagnosis (SCD).

For the World Bank, Brazil’s subsidy policies and social security pension system benefit those considered to be “rich” more than the low-income population. “Based on data from the 2014 National Household Sample Survey (PNAD, from the Brazilian Institute of Geography and Statistics), we have concluded that social security spending makes income distribution slightly more uneven” says Martin Raiser, World Bank Director for Brazil.

According to the bank, the social security pension system accounts for 28% of the country’s public spending, and one way to mitigate the problem is to increase the contribution period. The bank says that Brazilians retire, on average, at 60 years old. Increasing this number to 65 years would ensure that the person spent more time as contributor than as recipient.

The article adds that a worker that retires at 65 years old, in good health, can share knowledge and valuable experience with younger generations. “The effect on people’s lives can be beneficial and the fiscal impact is 100% positive”, said Raiser, according to the document.

In another area, the bank says that Brazil spends the equivalent to 5% of GDP on subsidies to companies, but those that benefit the most from this are not small businesses run by low-income people, but large companies that hire better-skilled workers and not necessarily create quality jobs for the poor.

The bank points out that the country’s financing cost is high and considering that subsidies are provided at below-the-market costs, it asks: “Are they going to those who really need them?”

The World Bank also says that the 12.1% of the GDP allocated to programs and services for the low-income population includes primary and secondary education and programs such as Bolsa Família. That is, it’s a lower amount than what the country spends on debt interests. In this sense, the bank advises the reallocation of funds available to the social area.

*Translated by Sérgio Kakitani