Majority supports raising taxes to reduce inequality in Brazil

RIO DE JANEIRO, BRAZIL – Support has more than doubled since 2017, rising from 24% of Brazilians to 56%.

Amid a new spike in poverty and pressure to expand income programs, an unprecedented survey by Datafolha for Oxfam Brazil found that a majority of Brazilians now favor raising taxes to fund social policies.

Support has more than doubled since 2017, rising from 24% of Brazilians to 56%. Nine in ten believe that reducing inequality should be the government’s priority; and a majority (68%) believe that tackling the issue is key to development.

With Brazil’s poverty rate at its highest level in about 15 years due to the Covid-19 pandemic, Congress has been pressuring the Jair Bolsonaro government to find sources to fund a more robust income distribution program; or bolster the Bolsa Familia (Family Grant).

The president himself has an interest, as his popularity has been closely linked to the payment of the emergency aid since 2020. The higher the benefit, the more Brazilians will approve of him.

Last year, the government began to analyze the creation of the Renda Brasil (Brazil Income), which would unify several social programs.

But Bolsonaro abandoned the issue, saying he would not take money “from the poor to give to the very poor” – because the program would eliminate some benefits for formal workers with lower incomes.

The poverty rate in Brazil, considering people living on less than R$246 (US$47) a month (R$8 a day), rose from 11% in 2019 to 16% in the first quarter this year.

Brazilians in poverty rose from 24 to 35 million, according to data from FGV Social.

In 2020, the payment of emergency aid exposed how such programs have an immediate impact: in August, at the peak of the R$600 monthly benefit payment, the poverty rate fell to 4.6% (10.1 million people), the lowest since official records began.

Between April and July this year, while the new R$250 average benefit is being paid, extreme poverty should drop from 16% in the first quarter to 13% (28 million people).

From August on, the trend is for the rate to rise again should the economy not react, mainly for informal workers – whose jobs, depending on their occupation, have shrunk by up to 20% in 2020.

While a tax reform is being discussed in Congress, the Datafolha/Oxfam survey showed that an even higher percentage of Brazilians (84%) support taxing mainly the wealthiest in order to finance social policies.

On the other hand, the wealthiest (with incomes above five minimum wages, or R$5,500) are the least favorable to this. Among them, adherence to the concept stands at only 35%.

Among Brazilians earning up to one minimum wage (R$1,100), who theoretically could benefit from the programs, support reaches 61%.

According to calculations made by the Center for Research in Macroeconomics of Inequalities (MADE) at FEA/USP, each R$100 redistributed from the wealthiest 1% in Brazil to the poorest 30% could generate an expansion in aggregate income of R$106.70, thereby boosting consumption and growth.

The calculation takes into account the distributive structure and the propensity of the different classes to consume, in which the poorest 10% spend 90% of their additional income on consumption; and the wealthiest 1% spend 24%.

The increase in the overall population’s support for levying more taxes on society as a whole, on the other hand, may be linked to the deterioration ofBrazilians’ personal situations, as they find themselves more vulnerable.

The survey found that 69% of Brazilians now consider themselves members of the “lower middle class” or “poor,” an increase of 5 percentage points from 2019.

There was also a reduction in the expectation of social mobility, according to the survey -which personally interviewed 2,079 people in 130 municipalities in Brazil between December 7 and 15, 2020. The survey’s error margin is 2 percentage points up or down.

According to Jefferson Nascimento, coordinator of Oxfam Brazil’s Social and Economic Justice area, the fact that the majority of the population now accepts more taxes on society as a whole (and not only on the wealthiest) shows that there is an understanding that new programs are required and that they need funding to be implemented.

“It seems to have finally dawned on us that money is needed for these investments. There is also a perception that the State should be responsible for policies to fight inequality, in line with what organizations like the IMF [International Monetary Fund] and the World Bank have been saying,” Nascimento says.

One of the goals of the survey is to insert the topic in the tax reform debate that the government and Congress may pursue over the coming months – to achieve more equity in tax collection and increase resources for programs against inequality.

A study by economist Pedro Ferreira de Souza, author of “Uma História da Desigualdade” [A History of Inequality] (Jabuti Prize in 2019), shows that when compared to other major regions (or even Latin America and southern Europe), Brazil is the country that collects the least amount of taxes through income tax – whereby the wealthiest and, predominantly, formal employees are taxed.

By concentrating a large part of the gross tax burden on the consumption of goods and services, Brazil has proportionally increased the burden on the poor – who consume virtually all of their income.

While tax reform is not advancing and the new emergency aid program is scheduled to end in July, Senate President Rodrigo Pacheco (DEM-MG) said last week that Congress may issue a measure to extend the program “for one or two months” – albeit not specifying where the resources will come from.

In 2020, the aid was paid between April and December using R$293 billion. The current round initially provides only R$44 billion (15% of last year’s total).

Economy Minister Paulo Guedes has also been working to create alternatives and has announced programs that are still vague – and without concealing the electoral advantage that this may provide.

Another option is to expedite the redesign of Bolsa Família (Family Grant), increasing the value of the benefits and expanding the target audience before the 2022 election.

In an interview to Folha, published last week, Guedes declared: “Now the elections are coming? We are going to attack. There will be an improved Bolsa Família, BIP [Productive Inclusion Bonus], BIQ [Qualification Incentive Bonus], there will be many great things for you to applaud. Everything is done properly, seriously, without breching the cap, with no
confusion.”

Many specialists advocate bolstering Bolsa Família as the most effective way to fight poverty.

The program costs R$34.5 billion a year, reaches 14.7 million families, and pays an average of R$190 a month – less than the average of the emergency aid in 2020 (R$600) and this year (R$250).

According to MADE’s projections, for every R$100 distributed through the emergency aid last year, there was a R$140 increase in aggregate income.

In the case of Bolsa Família, because it is targeted on extremely poor people, the multiplier effect is much greater.

According to calculations by economist Naercio Menezes, from Insper, for every R$1 more per capita provided by the program, the per capita GDP of the municipality where the money is spent increases by R$4 – hence the preference of many specialists for the Bolsa Família.