ECONOMIC ANALYSIS DANGER 4

SURVEY OF BRAZIL PART 4 TO BE CONTINUED

IV- REFORMS TO FIGHT POVERTY

2-Taxes – Social contributions and reform of Brazil Organization

The first step to reduce the unbearable disparity between people as reflected by Gini index, is to apply an adequate tax system.

Brazil taxation is heavy according to OCDE, but a lot of taxes are indirect and penalize the poorest people in their ability to survive. On the other hand the wealth tax which was voted has never been applied.

The wealth tax is a direct tax on the high revenues and will have an immediate effect on a better repartition and national consumption could be increase by a good redistribution of the revenue issued from this tax. Of course the conservative OCDE recommends the suppression of this law affecting the interest of rich people. According to them Brazilian Nation should surrender to blackmail of rich people to transfer their money abroad if the law is applied.

Increase of general direct taxation and decrease of indirect taxation will permit to most people to live in better conditions and to boost the consumption.

Reducing the power of States

As for slavery, History is stubborn and States want to defend their privileges at the expenses of the poorest people as in the past Minas Gerais and Sao Paulo did.

The population cannot afford the luxury of an expensive federal organization generating high losses in taxes, projects efficiency and revenue repartition improvement.

a)    Tax efficiency

As fairly mentioned by OCDE the tax system is inextricable in Brazil because each State has a strong autonomy in its determination. Taxes are taken by States for the simple transportation of goods from one State to another, as Brazil was not one single Nation. States tend to multiply indirect taxes and affect the purchasing power of people. A single VAT at the scale of the Nation, instead of various indirect State taxes is by far preferable.

Nation is for us Brazil, by opposition to States whose attitude might be predatory as fairly indicated OCDE. States’s autonomy should re-equilibrated in Favor of Federal power.

Wealth tax is not enough and in general direct tax should be increased in a transparent context; this means that Government should take the necessary steps to fight the underground economy, which constitutes a delinquency. Doing so, Federal Government may expect additional resources which should be fairly redistributed in form of job creations, wage increases, and social services.

b)   Projects efficiency

In the quest to increase resources of the Nation, the fair application of them is a Government duty but States prerogatives might make difficult the control of fair application and redistribution by lack of visibility in a complex organization.

 A substantial part of Federal Budget is earmarked and returns to States and this does not permit an easy application of funds at the Nation scale.

c)    Revenues Repartition

Each State is the first beneficiary of its resources and we have thus Rich States and Poor States as Brazil was not a single Nation.

The case of oil is particularly significant. Revenue from oil is concentrated in the state of Rio de Janeiro and in its municipalities, which together accounted for about 45% of royalty and special participation revenue in 2008. Only a small percentage of these revenues “4%” are shared among non-producing states and municipalities through a Special Fund. This fund, the Sovereign Wealth Fund (SWF) only created at end-2008, is an inefficient repartition instrument among other States due to the small take from rich States. This system might destabilize Brazil as one single Nation.

The biggest Reform regarding Justice is to end with a federative system benefiting to a few States as in the time of the Republic of Fazendeiros of 1889 (See my report dated 4 January 2010). The policy of any Government will always be limited by this iniquitous organization.

3-MINIMUM WAGE

As Brazil should finish with the Republic of Fazendeiros, it should also finish with slavery and thus divorce clearly with the dark side of its History.

A minimum wage of 200 Euros (510 Reals in 2010) is a formalization of slavery. OCDE finds that slavery is not enough and recommends that users of workers at such levels should pay much less social contribution. Instead of recommending more stringent Government controls, OCDE, recommend again to the Nation to surrender in lowering Social contributions in order that these 200 Euros workers be formally hired. In our opinion law should be respected and delinquents hiring people informally should be punished.

Social contributions of Employers in Brazil are smaller than in European countries but OCDE mentions that they are too high in Brazil for an emerging country, which is discrimination in the value of work per country. European Union shich is a majority partner of OCDE (near 2/3) complains of the too low salaries and social contributions in emerging viewed as unfair treatment of worker but above all  as unfair competition on the international market.

OCDE indicates also that Brazilian workers are not enough productive.

A worker may only increase his productivity if corporations make the necessary investments in Equipments to increase production per hour and this also means:

·         More competence of Entrepreneurs

·         More Investments in equipment able to multiply the productivity of workers

·         More permanent education of workers to increase their skills

·         More Research and Development- Currently only State makes R&D and not at all companies.

As indicated 19 of the 30 members of OCDE are also members of EUROPEAN UNION and have signed the Charter of Fundamental Rights, whose principles exclude steps which might endanger people to survive.

Minimum wage should be entirely reviewed to permit each Brazilian citizen to live decently. In order to face their obligations, Brazilian Companies should learn efficiency and competence.

4-RETIREMENT SYSTEM

OCDE again severely criticized the Brazilian system and recommend the extension of working period with a postponed departure to retirement. OCDE would like that same criteria of western countries be applied in Brazil and recommend departure to 65 years for men and 60 years for women. OCDE does not take into account the very limited life expectancy in Brazil.

Life expectancy is particularly short for men with 68 years and a departure to retirement at 65 years will mean no retirement. This is particularly inhuman.

Unfortunately Brazilian Government was finally convinced by the conservative arguments since there is a project of law extending pension contribution period and retirement age to 65 years for men and 60 years for women.

 5-CORPORATE GUIDELINE

We repeat again the 4 principle we have just mentioned

·         More competence of Entrepreneurs

·         More Investments in equipment

·         More permanent education

·        More Research and Development

Companies should also work differently to face higher wage and salaries expenses. Production is currently directed to only a part of population with a sufficient purchasing power on a pricing basis impoverishing most of population.

Entrepreneurs seem to keep high margins formal or informal (underground economy). The real economical growth should be based on a mass production with reduced margins, restricted indirect taxation in a context of a real competition aiming to reduce substantially prices. For example, Brazil which is a substantial car maker is not a major world exporter, at very competitive prices taking into account the low staff expenses as China and India start to become.

Workers produce but should not be deprived from the fruit of their work as it is the case now. Entrepreneurs should learn efficiency in their own interest. Secular civism and Ethics should be taught more expansively since Christianity invasive in Brazil does not bring apparently sufficient sense of moral.