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Brazil’s Austerity Measures

By Staff Writer Indira Rayala ‘19

· Indira Rayala

Image from Wikipedia.

Following the messy impeachment of Dilma Rousseff, Brazil’s economy is still on the decline under President Temer. With thousands of jobs hemorrhaging every day, states are scrambling to pay police officers, teachers and other government employees. Money for subsidized meals is in such short supply that one legislator suggested the poor could “eat every other day.”

With Brazil struggling through one of its worst economic crises in decades, President Temer has been pushing an agenda to curb public spending in order to end the crisis. The centerpiece of Temer’s austerity drive is his success in persuading the scandal-plagued Congress to impose a cap on federal spending for the next twenty years. The cap, which would limit the growth in spending to the rate of inflation, is needed to scale back ballooning budget deficits.

While investors have applauded the measure as a turning point for Brazil’s economy, many critics are lashing out at the spending cap, citing its ability to harm the poor for decades to come. Philip Alston, the United Nations special rapporteur on extreme poverty and human rights, said “the spending cap placed Brazil in a socially retrogressive category of its own.”

Much of the criticism stems from the disproportional effect the austerity measures will have on the rich versus the poor.  Despite a struggling economy, judges are enjoying a forty-one percent raise and legislators in Sao Paulo, Brazil’s largest city, voted to increase their own salaries by more than twenty-six percent. Congress, which is preparing to cut pensions around the country, is now allowing its members to retire with lifelong pensions after just two years in office.

Additionally, Temer’s government is resisting calls to raise taxes on wealthy Brazilians, who still enjoy what some economists describe as one of the most generous tax systems for the rich among major economies. For instance, Brazilians remain exempt from paying taxes at all on dividends from stock holdings, and they can easily use loopholes to significantly lower taxes on other sources of income. A 2016 study from the Institute of Applied Economic Research showed that a fifteen percent tax on dividends could generate nearly $17 billion in revenue a year, but such proposals have failed to gain traction in a government that has shifted to the right.

Such incidences have ignited a fierce debate over how the richest and most powerful Brazilians protect their wealth and privileges at a time when most of the country is enduring a harrowing economic decline.

“The system is engineered to perpetuate inequality and Temer is doubling down on bets that Brazil needs Greek-style austerity,” said Pedro Bastos, an economist at the University of Campinas.

In response, Mr. Temer’s government says it is reversing the free-spending ways of previous government. In 2016 Brazil’s economy shrank about four percent, but just last month, the finance minister, Henrique Meirelles claimed that the recession has ended. There are promising signs of improvement: foreign investment has increased and the stock market performed exceptionally well in the past year. However the conditions on the streets of cities around Brazil tell a different story, with millions of Brazilians falling into poverty, and states facing crippling strikes by public employees over inadequate salaries. Authorities are shutting down restaurants that provide subsidized meals to the poor, raising taxes on residential electricity service and eliminating welfare programs for the state’s poorest residents.

These austerity measures may inadvertently increase the wealth of the elite instead of the millions of struggling Brazilians.

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