Fernando Alcoforado*
The Ministry of Economy informs that Brazil may enter into recession from the second half of 2020 if the pension reform is not approved and the unemployment rate would reach 15.1% in 2023. The growth of the Gross Domestic Product) in 2019, the first year of the Bolsonaro administration, would be less than 1%. By 2023, the economy would continue on a recessive trajectory reaching GDP drop of 1.8%. If no reform were approved over the projection horizon, annual GDP growth would tend to average 2.9 percentage points lower over the next five years compared to the scenario of changing social security rules. The document was prepared to try to convince the Brazilian population of the importance of approving the proposed Social Security reform sent by the Bolsonaro government to the National Congress.
The Ministry of the Economy correctly informs that the lack of control of public accounts is at the root of the serious economic crisis that the country has been going through arguing falsely that the current fiscal deterioration results from the increase in government spending on social security benefits that corresponds to 24% of the Union’s budget without mentioning, however, to the largest factor responsible for the government’s fiscal crisis represented by the burden of paying the public debt, which corresponds to 44% of the Union’s budget. The current fiscal crisis is fundamentally due to the excessive growth of the public debt and not the expenses with Social Security. Erroneously, the Ministry of Economy predicts that there will be less and less room in the budget for maintaining public expenditures essential to the well-being of the population (education, health, safety, sanitation) and public debt will inevitably go unsustainably if not happen the reform of Social Security.
In reality, there will be less and less budget space for maintaining public expenditures essential to the well-being of the population (education, health, safety, sanitation and even social security) if the federal government increasingly payment of the public debt burden. The main effort that should be developed by the federal government would be to reduce the burden of paying public debt and not to reduce spending on Social Security. Public debt will inevitably enter unsustainable trajectory, not with the maintenance of Social Security spending, but especially if the federal government continues to spend more than collection taxes. To reduce government spending, it must eliminate superfluous expenditures and unnecessary organs, and in order to raise more collection taxes, it is necessary to make the Brazilian economy grow and tax large fortunes, dividend income and banks.
The economic team warns that the unemployment rate may once again hit record highs if welfare reform is not approved. The Ministry of Economy says that the unemployment rate could reach 15.1% in 2023 without changes in the rules of retirement and pension in the country. On the other hand, the approval of the reform could make this rate fall to almost half, to 8, 0%. That is because changes in the rules could create nearly 8 million jobs by 2023 – an average of 1.33 million per year and that job creation potential would increase, according to government estimates without explaining how this “miracle” job creation would take place.
Without the reform of Social Security, the interest rate would rise sharply to 18.5% by 2023, predicts the Ministry of Economy. Already with the reform, the Selic rate could reach around 5.6% per year in 2023. Without changes in social security rules, the Ministry of Economy predicts a catastrophic scenario for the government’s gross debt, which would enter an explosive trajectory. In the scenario without reform, the fiscal indicators would worsen considerably: the primary result of the consolidated public sector would remain permanently deficient. Already with the reform, differently, surpluses are generated as from 2021. In the absence of reform, the gross debt of the federal government would continue in an explosive trajectory, whereas in the reform scenario, not considering extraordinary revenues, it would begin to decline. starting in 2021. “The more the pension reform was postponed, the greater the cost for the Brazilian population,” says the document of the Ministry of Economy.
It should be noted that the results of the study of the Ministry of Economy cannot be considered as irrefutable truth because they have no scientific basis. It was another scenario building exercise that is a technique that assumes that there are uncertainties and unpredictability that do not ensure that its results will happen. The document of the Ministry of the Economy tries to convince the Brazilian population using, therefore, a technique that does not have a deterministic base.
The Ministry of Economy’s estimate is that Social Security reform would make it possible to save R$ 1 trillion in 10 years, which would mean an average of R$ 100 billion per year. Taking into account that GDP (Y) is calculated by the formula Y = C + I + G + X -M in which C corresponds to household consumption, I private sector investment, G government expenditure, X export revenue and M spending on imports, the economy of spending on Social Security reform would reduce G’s government spending by R $ 100 billion annually, increasing its investment capacity equivalent to that of 2014 (R$ 99.1 billion ) and is derisory in comparison, for example, with the R$ 845.25 billion investment needed to sustain GDP growth rates of 5% per year.
In order to solve the problem of the deficit in the public accounts, a reason alleged by the Bolsonaro government to carry out the Social Security reform, the federal government should adopt as a fundamental strategy the reactivation of the Brazilian economy which, in addition to tackling the unemployment problem of 13 million workers and 14 million discouraged workers, would contribute to raising tax revenues through a broad program of public infrastructure works (energy, transportation, housing, sanitation, etc.) and, as a consequence, promote the expansion of household consumption resulting from the increase employment and wages, and corporate income from investments in public works. In addition to the public works program, the Brazilian government should develop a broad export program, especially agribusiness and the mineral sector, and promote drastic reduction of bank interest rates to encourage household consumption and investment by companies, reduction of costs of public administration with the freezing of the high salaries of the public sector, the cut of stewardships and organs of the public administration.
In addition to adopting the strategy of reactivating the Brazilian economy to raise tax revenues and reduce public administration costs, the federal government should promote public debt auditing followed by reduction of interest payments and public debt amortization to be renegotiated with public debt creditors. The Federal Budget for 2019 corresponds to R$ 3.262 trillion. Among the expenses, the financial expenditure with the so-called public debt stands out, which will consume almost 44% of the entire budget, or R$ 1.425 trillion. Expenditures on debt comprise debt amortization expenses of R $ 1.046 trillion and interest expense and debt charges of R$ 379 billion, totaling R$ 1.425 trillion. Spending on public servants – active and retired – will consume R$ 350.4 billion. Expenditures on Social Security (INSS) are expected to reach R$ 625 billion, well less than half of what will be spent on public debt. The amount destined for public investment is insignificant for a country like Brazil of only R$ 36 billion. Therefore, the high deficit of public accounts is clearly located in the financial expenditures with so-called public debt – which has never been audited, as mandated by the Constitution and not Social Security expenditures.
In addition to adopting the strategy of reactivating the Brazilian economy to raise tax revenues, reduce public administration costs, and reduce the burden of interest payments and public debt amortization to be renegotiated with public debt creditors, federal government should go after the large debtors of Social Security whose debt totals R$ 426 billion. It should be noted that among the 400 largest Social Security debtors are Bradesco (R$ 465.2 million), Itaú (R$ 88.8 million), Caixa Econômica (R$ 549.5 million), Banco do Brasil (208,2 million), Santander (R$ 80.8 million), Banco Rural (R$ 124.8 million), CBTU (R$ 131.6 million), Friboi (R$ 1.8 billion), Jornal do Brasil (274.9 million), Lojas Americanas (R$166 million), Oi (R$ 126,5 million), Usina Santa Rita (R$ 205,5 million), Usina Santa Helena (R$ 159.5 million, Usina Santa Maria (R$ 76.7 million), Vasp (R$ 1.5 billion), former Parmalat (R$ 25 billion). These are just some of the cases of large Social Security debtors.
* Fernando Alcoforado, 79, holder of the CONFEA / CREA System Medal of Engineering Merit, member of the Bahia Academy of Education, engineer and doctor in Territorial Planning and Regional Development by the University of Barcelona, university professor and consultant in the areas of strategic planning, business planning, regional planning and planning of energy systems, is the author of 14 books addressing issues such as Globalization and Development, Brazilian Economy, Global Warming and Climate Change, The Factors that Condition Economic and Social Development, Energy in the world and The Great Scientific, Economic, and Social Revolutions that Changed the World.
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