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Tue 23
Four ideas show that Brazilians are addicted to the state

Four ideas show that Brazilians are addicted to the state

Most Brazilians believe that the economy should be more regulated by the state than the market and that major companies should belong to the state

Luan Sperandio

Research have shown that most Brazilians defend that the economy should be more regulated by the state than the market, and that major companies should belong to the state, since it is the main agent in the reduction of inequalities and providing basic services.

And this is nothing new. In 2007, 7 out of every 10 Brazilians believed that the Brazilian government should control the price of every product sold in the country. This research is in the work ‘A Cabeça do Brasileiro’ (“The Head of the Brazilian”), by Alberto Carlos Almeida.

In the utopia of these Brazilians, the state is a balloon which helps to raise and sustain each individual in the air. In practice, it is an anchor attached to the leg of each individual, preventing him from even walking, let alone from taking any flight.

So much trust in the state hides an apparent paradox: a research done by Ipsos Institute in 2017 pointed out that 94 percent of the electorate did not feel represented by any political. How can we delegate such as a task to those we do not trust?

This paradox was attested by political scientist Bruno Garschagen in his work “Pare de acreditar no governo: por que os brasileiros não confiam nos políticos e amam o Estado” (“Stop believing the government: why Brazilians don’t trust politicians and love the state”).

As in every psychologic dependence treatment, changing the clinical scenario takes time. With our “destatization”, it will not be different. It is a process in which Brazilians will have to gradually free themselves from the false narratives which chain themselves to the belief that politicians who limit their ability to reach a better quality of life are concerned about their well-being.

Within this context, there are many common myths in the public debate embraced by most Brazilians, which need to be eradicated if we wish to reach a higher degree of social and economic development around here. We’ve chosen four of them so that our anchor can be reduced in size.

1 “A minimum retirement age is a violence against the poorer”

After the public debate has been focused day and night, for three years, towards the question of social security reform, there has been a greater understanding that the current social security rules are economically unsustainable. Fake, mistaken and irresponsible discourses, such as the one which claims there is no deficit in the system, or that “collecting from the debtors” is enough, have been purged, little by little.

This has been detected in a research done by XP Investimentos, which pointed out that 64 percent of the population is in favor of a reform. However, only 23 percent support the minimum age proposed by the government – 62 years for women and 65 years of age for men. According to expert Paulo Tafner, this is the point whose alteration demands a bigger urgency. Brazilians, therefore, have already understood that something needs to be done regarding the social security system, but they still oppose the central proposition, its most important point.

For some, the issue of a minimum age demands more time to be debated. However, it has been discussed in Brazil since at least 1984, when the Ministry of Social Security already warned that the establishment of a minimum age was part of a series of measures which, if not implemented at that moment, would make it impossible to maintain the social security system. That debate has been going on for 35 years.

The reform proposal sent by Bolsonaro’s government, previously presented by Michel Temer, is not something new in the country. The issue had been voted in 1998, during Fernando Henrique Cardoso’s administration. However, due to a material mistake by the congressman and, at the time, government leader in Congress Antônio Kandir, it wasn’t approved: the former deputy ended up getting mixed up, and eventually did not vote in favor of the adjustment proposition. Perhaps that was the dearest vote Brazil never had.

A minimum age has previously been established in Brazil. In 1923, one of the requisites to retire was, as well as contribution time, having at least 50 years of age. This minimum age was extended to 55 years in 1948, during Eurico Dutra’s government. However, in August 1962, then-president João Goulart revoked this demand, enabling individuals to retire merely for their contribution time. In merely four articles, he merely mitigated any sustainability of the social security system in the middle run, and now we see the result of that.

Almost one century after the creation of the Brazilian social security system, the country’s life expectancy and survival time increased, but more than one-fifth of women and 10 percent of men retired before 50 years of age around here – something which was not allowed in 1923.

According to a study by Gazeta do Povo columnist Pedro Fernando Nery, besides Brazil, only 12 countries in the world have no minimum age: Saudi Arabia, Algeria, Bahrein, Egypt, Ecuador, Hungary, Yemen, Iran, Luxembourg, Serbia, and Switzerland.

Even though protests against the establishment of a minimum age are commonly based on the protection of the rights of the poorer, retirement for contribution time is precisely the one which concentrates the most privileges. This happens because it is easier for urban workers and those who belong to rich families to maintain themselves formalized, while those who are most vulnerable are not able to keep their social security cards up to date, and end up having a late retirement, with fewer benefits. The adjustment proposed by FHC, Temer, and, now, Jair Bolsonaro, will try to make this system more equalitarian.

2 “We need to raise the minimum wage”

The Bolsonaro government changed the readjusting rule of the minimum wage. Salaries’ floor stopped rising above the inflation, and are limited to maintaining the purchasing power of the workers.

The change goes against the national political consensus which claims that there is a need of raising the minimum wage at a constant place; therefore, the debate remains restricted to the calculation it needs in order to be increased every year. It is not reflected, however, if it even needed to exist, or if it needed to be fixed monthly, hourly, or if there should be any difference between regions, according to the purchasing power of each federative entity.

Although minimum wage laws are defended as a way of helping low-income people, in practice, they tend to harm them: they force employers to discriminate people with low qualification. Therefore, this group is double punished: first, when the state provides a low-quality elementary education, failing to provide them enough capacitation to act productively and earn good salaries. And, afterward, when it prevents these people from having the opportunity of being hired for jobs that, even still poorly remunerated, they offer an initial experience and a form of training for the work, as well as providing sustenance for those who have no other alternative. This is the point of view defended by 1976 Economics Sciences Novel prize winner Milton Friedman.

The minimum wage poses a grave problem when there is a detachment between the salary floor to be paid and the average productivity of the region on which is it settled. When that happens, a less-skilled worker has a greater difficulty in finding formal jobs; for his or her hiring to be viable, their production needs to be superior to salaries and hiring costs.

This discrepancy between productivity and an increase in salary floor has been witnessed in Brazil. From 2004 and 2015, disregarding inflation rates, the minimum salary went up by 68 percent, while productivity remained at 18 percent. It is no wonder that the informality rate among younger workers is superior to this rate among adults, and the former group tends to suffer more for unemployment: a study by the Federal Senate demonstrated that the probability of being unemployed is reduced with age, especially due to the lack of experience when one is young. The unemployment rate in the age group of 14 to 24 years of age is twice as big as the general average; between the ages of 14 to 17, it is triple that amount.

Not all places in the world have a salary floor like the one established by Vargas. Several countries, such as Austria, Denmark, Finland, Norway, and Sweden, chose not to adopt it. Switzerland, for instance, refused in a 2016 referendum a minimum salary equivalent to R$ 10 thousand, and almost 80 percent of voters opposed the measure. Are you surprised? You shouldn’t be: among the greatest consensuses among economists, is that which institutes that a minimum salary increases unemployment among young and unqualified young people. Even in the United States, there are no annual readjustments, and the value is indexed by hours, with more flexibility than Brazil’s hiring practices and employment relationships.

There is also the problem involving our minimum salary being fixed throughout the whole national territory. Since Brazil is a country with continental dimensions, there are socio-economical realities extremely different between states: the purchasing power of a R$ 100 bill is equivalent to R$ 150 in Piauí, and, in Rio de Janeiro, the same amount is no more than R$ 81.

According to Friedman, even though minimum salary laws do not object, in theory, to the exclusion of minorities, this is its practical result. It is a consensus among economists that increasing the minimum salary also increases the unemployment rate among less qualified workers and young people. Another proof that hell is filled with people with good intentions.

3 “Brazil is poor because it doesn’t invest in the national industry

A survey indicated that the participation of the industry in Brazil’s GDP is the lowest since 1947, when the figures began to be registered. The sector represents 11.3 percent of the country’s economic activity, reflecting the deindustrialization experienced during the last decades of the country.

This data alone was enough to spark requests for subsidies and greater protection of the industry. Brazilians have a short memory.

The New Economic Matrix, which was implemented during the Workers’ Party (PT) heyday, consisted of subsidizing interests through BNDES in order to stimulate the industry. In other words, public money was used to help companies.

During a nine-year period, from May 2007 to May 2016, BNDES’ account closed in R$ 1.3 trillion, an amount equivalent to 40 times the current Bolsa Família budget – projected to R$ 30 billion in 2019.

This was not the only pampering received by the national industry from the government. Brazil’s commercial barrier is one of the biggest in the world, responsible for inhibiting foreign competition. As a result, Brazilian consumers as forced to pay more for products of inferior quality.

It is a common myth to associate a country’s wealth to the number of industries it has. Australia, for instance, has been exporting commodities with a much higher income than Brazil, and has been growing uninterruptedly for three decades.

The increase in richness is due to an increase in productiveness, that is, more value is being generated after the employment of the same inputs, such as capital, labor, lands, etc. This is the main factor which keeps Brazil as a medium-income country: our productivity has been stagnated for five decades, a period which has been called by British magazine The Economist “the 50-year nap.” While people are discussing 4.0 economies, Brazilian workers are currently producing on average the same as a Brazilian worker produced in the 1960s.

It should be pointed out that the deindustrialization process is a worldwide phenomenon. A process of tax simplification could reduce production costs. According to the World Bank, we are the world’s champion in tax complexity, with each company spending on average 1,958 hours just to honor their tax commitments. The cost of all this? R$ 60 billion per year, which could be better allocated towards the economy, with fewer costs and bigger investments in innovations.

Brazil’s infrastructure also needs improvements: in the index organized by the World Economic Forum, which measures the quality of each country’s infrastructure, Brazil is currently occupying a shameful 120th place, out of 144 possible places. And that should preferably be done after concessions to the private sector.

4 “We need to tax large fortunes”

A common crutch in the public debate is the demand for a regulation on taxes on Large Fortunes. Every time this subject comes up, it is accompanied by different figures, since there are so serious methodologies on its impact from those who propose it, with no estimates nor much basis.

In this current legislature, PSB has filed a bill attempting to implement this charge in Brazil. Among their causes for this policy, they claim that the Brazilian fiscal crisis is allegedly due to a drop in the federal revenue.

This is a flawed diagnosis: in 2018, we’ve had the biggest revenue in the last four years, and we still have a primary deficit of over R$ 100 billion. The worst crisis in the history of the country was due, above all, to the lack of control of budgetary expenses, especially regarding the spending escalade provoked by social security. It is estimated that in 2019 the government will close its sixth consecutive year spending more than it gets.

Besides, raising taxes in an economy already shaken may cause even bigger problems: an IMF report showed that fiscal adjustments should consist, preferably, of spending cuts, and not tax hikes. The justification is that unemployment and economic retraction are not overpowering in this kind of adjustment.

Regarding the implementation of a tax on great fortunes, it must be pointed out that, although Brazil is an unequal country, with plenty of income concentration, even the 5 percent richest people in the country have great fortunes: their income is approximately R$ 5,200 per month. After all, Brazil is a middle-class country.

There is still the issue of the low collecting potential when this kind of legislation is implemented: around R$ 6 billion per year, according to a projection made by the Senate’s Consultant Office. Such a figure would pay for the equivalent of 12 days of the social security deficit.

During the 1990s, 12 high-income countries imposed taxes on great fortunes. In 2017, that number had plummeted to only four: Spain, France, Norway, and Switzerland.  Still, in 2018, France changed its rules, so that the charging of tax rates would only be applied on real estate, and not on financial assets and other personal properties. In that sense, a report by the Organization for Economic Co-operation and Development (OECD) tried to list a few reasons why other countries have not only been reducing, but also extinguishing taxes on riches, as well as providing a balance of positive and negative arguments regarding such policies.

For the OECD, the concern is reasonable, considering the political agents, with the increase of wealth concentration. However, if a country has the means to establish a tax on capital gains, inheritances and properties (such as IPTU and IPVA), a combination of these elements is usually preferable to IGF – both from the perspective of administrative costs, as from the efficiency of inequality reduction.

Among negative factors associated to the measure, are the discouragement to the behavior of saving and investing, the discouragement to entrepreneurial activities, and problems related to liquidity: once the relationship between income and estate is imperfect, there are no guarantees that those who have valuable assets will necessarily have funds to pay for taxes.

The defense of tax hikes for the rich is disguised under the guise of social concern, but, in practice, it does benefit those who are most vulnerable, as some tax exemptions could do.

In order to fully join the “pro-poor” cause, one would rather demand a tax cut focused on those who have a smaller income. If, instead of this, one only defends tax payments from those who are richer, they would be better off wearing the “anti-rich” jersey.