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Treasury: Brazil Spends a Lot on Interest, Pensions, and Justice

The Central Government - National Treasury, Social Security and Central Bank - spends a lot on expenses that distort the distribution of income, according to a report released on Tuesday by the Treasury.

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The study compared Brazilian public spending with 54 countries, grouping expenditure functions into ten categories, according to the Organization for Economic Cooperation and Development (OECD) and United Nations (UN) methodology.

The Brazilian Budget assigns 28 functions to public spending, which, according to the Treasury, required compliance with international standards to facilitate comparison. According to the OECD and UN classification, the Central Government spent 33.7% of the Gross Domestic Product (GDP) in 2016. This is the fourth largest volume among the countries analyzed, only losing to the countries Northern Europe – Denmark, Finland, Norway, and Sweden.

The difference, the Treasury report said, lies in the fact that the Nordic countries are rich and heavily taxed, allowing them to be able to afford high public spending. In addition, the document added, the country spent on functions that provide little return on public services.

Public debt

In 2016, Brazil spent 9.7% of GDP on interest payments on public debt, against 2.7% of emerging countries and 1.95% of developed countries. The fall in basic interest rates between 2015 and 2017 reduced this type of spending by R $ 123.6 billion (18%), but the report pointed out that Brazil continues to spend a lot on public debt service. The base year of comparison was 2016 to allow international comparison.

Retirement

In Brazil, Brazil disbursed 12.7 percent of GDP in 2016, compared to 8.2 percent in advanced economies and 7.6 percent in emerging countries. The Nordic countries, on average, spent 12.8 percent of GDP. However, the Treasury pointed out that the proportion of the elderly in Brazil is much lower than in the countries of northern Europe. In Finland, the population over 65 is equivalent to 35.5 percent of the total, compared to 13.9 percent in Brazil.

To prevent the out-of-control of public spending, as the Brazilian population ages, the report recommends the approval of the pension reform. “In order to deepen this [fiscal] adjustment, it is essential to make progress in the reform of Welfare, without which there will be no control of public spending in Brazil,” the report said.

The Treasury pointed out that the approval of the Social Security reform will allow improving the distribution of income in the country, by re-allocating part of the funds to the less favored plots. “With this reform, it will even be possible to improve the state of social welfare in the country by directing a greater share of public spending to the most vulnerable population, and not to those with higher purchasing power, who retire on average with less than 55 years old, “the statement said.

Judiciary

The report found that the proportion of spending on the judiciary was high. In 2016, Brazil spent 1% of GDP on the courts, more than triple the average of 0.3% of the countries analyzed. Expenditure does not only cover expenditure on servers, but also administration, management or support of the courts, and legal representation and legal advice on behalf of the government.

While it spends more than the average with the Judiciary, the country spends less than the healthy ones. In 2016, Central Government health expenditure totaled 2 percent of GDP, compared to 2.5 percent in emerging countries and 3.3 percent in developed countries. Federal expenditures focused on transfers from the Unified Health System (SUS) to state and municipal health funds, which finance the Basic Health Care programs and procedures such as treatments, hospitalizations, and exams.

Regarding education, Brazil spent 2.4 percent of GDP, against an average of 3.1 percent of the countries surveyed. Most of this total was earmarked for higher education, within the competence of the federal government. This is because the Law of Guidelines and Bases of Education establishes the administration of the high school to the states and elementary education to municipalities.