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.
66
ESS-33
The introduction in 1997 of a temporary tax based on financial transactions as a form of social contribution the CPMF was an interesting attempt to draw resources from the
formal economy in order to finance social spending targeted at the poorest segments of the population. Most of the revenue from the CPMF was used to finance non-contributory
programmes.
The relative weight of social contributions in public finances is also apparent in other developing countries. In Latin America, Chile, Colombia, Costa Rica, Mexico and
Uruguay head the list of countries where social security contributions make up a substantial proportion of public finance and social investment for development. In Africa,
Tunisia is another example, where social security contributions stand at around 5.6 per cent of GDP and contribute about 30 per cent of total tax revenues.
This is very important for understanding the role of social security institutions in the creation of fiscal space, even in developing countries.
In countries with a lower level of development, as is the case of most African economies, social insurance is still at an embryonic stage and, if this situation does not change, their
social protection systems will continue to rely heavily on non-contributory financing – and,
in some African countries, perhaps also on direct foreign aid. However, this is no reason to renounce efforts to establish social protection systems financed by social contributions. On
the contrary, it should serve as an encouragement to continue developing social protection in the long term, with the idea of combining a capacity to create fiscal space based on
social insurance systems with general taxation to finance non-contributory programmes. Given the experience of Brazil and other middle-income economies, one focus of the
discussion on creating fiscal space in low-income economies should be on innovative ways of collecting public resources so as to generate some degree of income redistribution.
5.4.3. Rural pensions
Rural pensions are just such an innovative tool for extending coverage to rural populations in Brazil. The countrys social assistance scheme was set up in 1971, when it was known as
FUNRURAL. The 1988 Constitution subsequently changed the method of financing and administering the programme. By means of this innovation, Brazil had by 2007 managed
to incorporate it into the special insurance scheme Segurado especial aimed at small rural producers and over 80 per cent of rural employees,
18
a remarkable social security indicator for Latin America.
Since 1991 producers, partners, sharecroppers, tenants and fishermen working for family businesses with no permanent employees contribute to social security at a rate of 2.1 per
cent on the gross income earned from marketing their products. Under this scheme retirement pensions equal to the minimum wage are paid from the age of 60 for men and
55 for women. The benefit is conditional on having engaged in a rural activity for at least 15 years. In 2008 the scheme was the subject of special legislation.
Between 1992 and 1994, Brazils rural social insurance legislation had a great impact on the expansion of the countrys fiscal space and social insurance coverage IPEA, 2007.
The special insurance scheme established under the legislation receives a very substantial volume of state subsidies, estimated at about 85 per cent of total expenditure; the benefits
18
Cited in Cabanas, 2008.
