Economic Survey of Brazil 2005: Strengthening social policies and expenditure

 

The following OECD assessment and recommendations summarise chapter 4 of the Economic Survey of Brazil 2005.

Brazil’s social indicators are not always commensurate with high spending levels on social programmes

There seems to be widespread agreement within the government and beyond that social disparities do not allow for the benefits of sustained growth to be evenly spread among different social groups. Social exclusion prevents vulnerable groups from acquiring labour market-relevant skills, contributing to high unemployment and informality among these groups, as well as perpetuating income inequality. The main challenge in this respect is to strengthen the social policies that will allow for the pursuit of the government’s social agenda while maintaining fiscal discipline and galvanising support for furthering structural reform. Much has been done in the social area over the last decade or so, with unquestionable improvements in key social indicators, particularly in education. The government nevertheless continues to have an important role to play, ensuring that social outcomes are commensurate with Brazil’s already high levels of spending on social programmes, including pensions. General government spending on social programmes — including education, health care, housing and urbanisation, social security and assistance, and unemployment insurance — accounts for about one-quarter of GDP, well in excess of average spending in countries with a comparable level of income. In light of these high spending levels, emphasis should gradually be shifted to improving the cost-effectiveness of social programmes, focusing on continuity through an incremental strengthening of existing programmes and improvements in service delivery.


 

The distribution of income remains stubbornly skewed in Brazil. Public social spending is a poor instrument to redistribute income because contributory programmes, such as pensions and unemployment insurance, account for the lion’s share of public social spending. These programmes are also reserved for formal-sector workers, who tend to have above-average incomes. Public spending on pensions alone already accounts for a higher share of GDP in Brazil than in the average OECD country, despite Brazil’s younger population. But spending on means-tested programmes, such as income transfers for the care of children, and elderly and disabled persons, accounts for a relatively small share of public social spending, well below the OECD average. Rural pensions, which are essentially non-contributory, are considered one of the best-targeted social programmes currently in place. Due to broad recognition that these income transfers are important poverty alleviation tools, they have been preserved from cuts in periods of fiscal retrenchment. To correct these structural imbalances within the current budget envelope, the financial sustainability of the social security system will need to be restored to make room for higher spending on programmes which are more pro-poor and conducive to the accumulation of human capital.

Social policies can become more pro-poor

Untargeted social spending, especially on education and health care, can also become more pro-poor. This can be achieved by continuing to shift the composition of spending towards preventive care and primary and lower-secondary education, which tend to benefit the poor more than others. For example, the share in GDP of public spending on education is close to the OECD average but Brazil fares poorly in the OECD’s PISA measurement of student performance in comparison with countries with similar levels of public spending on education. Tertiary education accounts for about one-fifth of government spending on education, close to the OECD average, but the average cost to the budget of higher education per student is about 150 per cent of GDP per capita, about three times as high as the OECD average. The option of increasing cost recovery in higher education through the better targeting of existing tax expenditures directed to philanthropic institutions is thus welcome. With regard to improving access to primary and lower-secondary education, the experience of FUNDEF (a fund to finance sub-national spending on primary and lower-secondary education based on minimum spending per student and federal top-up grants), with its impact on school enrolment rates, is welcome. This is also true for greater reliance in programme design and service delivery on the conditional, means-tested income transfers, including those now under the Bolsa Família umbrella. In recognition of the fact that poverty can be alleviated and income distribution can be improved over the longer term through human capital accumulation, continued use of school attendance as a condition for enrolment in income transfer programmes is strongly advisable. So is the appropriate monitoring of compliance with programme conditionality.

 

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