Social investment Brazil: Increasing fiscal space through social contributions

64 ESS-33 health, school health, promotion and prevention of oral health and medicine delivery. Social assistance and food and nutrition security include the Social Assistance Reference Center, Specialized Social Assistance Reference Center and programmes such as food bank and food at school. The productive inclusiveness’’ is ensured in rural areas through technical assistance, support access to public and private markets, building cisterns and the Green Grant Programme Bolsa Verde which transfers USD152 per three months by Bolsa Família card to families registered in the Support for Environmental Conservation Programme. In urban areas, the government seeks productive inclusiveness’’ through vocational training and job creation. Its goal is the inclusion of Bolsa Família beneficiaries in the labour market. The target population is identified by an ‘‘Active search’’ based on poverty maps. Families’ registration is done at local level using the Unified Registry for Social Programmes of the Federal Government Cadastro Único para Programas Sociais. This mechanism collects socio-economic information about families in poverty household characteristics, education level, employment status and income level. The families which qualify for but currently don’t receive benefits from any social protection programme are indentified and included in various programmes according to their needs. Families already registered are automatically included in the Plan, and must also meet the criteria for participation. The government has budgeted about Reales 20 billion annually to finance the Plan. This budget includes Bolsa Família funds. This annual budget is covered through 2014. Although the number of families and individuals receiving conditional cash transfers is considerable, the same cannot be said of the volume of expenditure of these programmes especially when compared with the level of total investment in social protection, which reached 18 per cent of GDP in 2008. This suggests that, even though expenditure on social assistance programmes in Brazil experienced a significant increase in recent years, it is still far below the level of spending on other social protection programmes, such as health and social insurance. Social insurance programmes are currently the main beneficiaries of spending on social protection and, in terms of the revenue they generate, they have in recent years been the main creators of fiscal space in the country.

5.4. Fiscal space for social protection

As we have seen, Brazils social spending, especially its social security expenditure, has increased considerably over recent years, with a strong acceleration during the 2000s. This scenario raises two questions. What were the sources of financing that were used to cover the growth in expenditure on social protection? How was this related to the mechanisms for creating fiscal space?

5.4.1. The 1988 Constitution and fiscal space

The new Constitution introduced explicit guarantees with regard to the Brazilian peoples right to social security. This is very positive in terms of the government social protection policys compliance with the provisions of the main international instruments protecting human rights: the Declaration of Philadelphia, the Universal Declaration of Human Rights and the International Covenant on Economic, Social and Cultural Rights. ESS-33 65 A direct consequence of the progressive consolidation of this framework of rights was the very substantial expansion of the States obligations compared to the countrys minimum level of spending on social protection in the past. This in turn posed a challenge in terms of fiscal sustainability because of the rigidity in fiscal management that normally is associated with the commitments to pay contributory benefits. This issue will be addressed later in this chapter.

5.4.2. Gross tax burden: The role of social contributions

In accordance with the definition proposed by the United Nations, the Brazilian Institute of Geography and Statistics IBGE divides taxes into five categories: taxes on products, other taxes linked to production, taxes on income and property, social contributions, and taxes on capital. These are the components that constitute Brazils gross tax burden, usually expressed in terms of GDP. Santos and Costa 2007 have documented the increase in Brazils gross tax burden from 27 per cent in 1996 to almost 31 per cent in 2006. This is without doubt one of the biggest increases to have occurred in Latin America, and it places the country in a privileged position compared with the rest of the developing world. The remarkable expansion of the tax burden is largely attributable to changes in social contributions, which as defined in Brazil go beyond social security contributions to include other components as well. Figure 30. Brazil: Fiscal revenue including social contributions and social contributions, as a percentage of GDP Source: Ministry of Finance and National Treasury, 2010; International Monetary Fund, 2010b. Total tax revenues, including social security contributions and other social contributions such as the Contribuição Provisória por Movimentação Financeira CPMF, a temporary or interim tax on financial transactions, expanded greatly between 2000 and 2005. Brazils tax structure is marked by a strong presence of social contributions, in which social insurance payments are the main component. As can be seen from figure 30, almost half of the States fiscal revenue comes from social contributions.