Brazil, The Emergency Income

An emergency monthly payment designed to help Brazil’s economically vulnerable population, notably informal workers, during the economic crisis caused by the coronavirus (Covid-19) pandemic has just been extended.
Brazil Emergency Income

To date it has benefitted more than 60m people. It has played an important role in limiting hardship and shoring up consumption at a time of crisis. Some even hail it as a precursor of a Brazilian universal basic income scheme. Yet it all seems to have happened more by accident than by design.

The right-wing government led by President Jair Bolsonaro was not really prepared for the Covid-19 pandemic – critics say its reaction to the health emergency remains catastrophically poor. It was also slow to strengthen the social safety net, or indeed to understand why such a measure might be necessary. There are high numbers of informal workers in Brazil who function entirely outside the tax and benefits system. Without social protection they are more likely to spread the virus, driven by economic necessity to evade quarantine measures, for example by continuing to work on crowded streets.

The first instinct of Economy Minister Paulo Guedes back in March was to allow companies to cut workers’ wages by up to 50% during the pandemic, arguing that this would be the best way to preserve jobs and income. Guedes did acknowledge, however, that there was a case for making extra payments to the poor and informal workers (around 40% of the total workforce), but he proposed that it should be set at R$200 (about US$38) a month. It was left to members of the ‘centrão’, the loose coalition of centre-right parties in Brazil’s congress, and other lawmakers on the Left to amend the government’s weak initiative, tripling the payment to R$600 (US$113). As approved in April, the price tag on the final bill turned out to be around ten times greater than what Guedes had originally planned on spending.

In its final version this handout, initially dubbed the ‘corona voucher’ although it is now more commonly referred to as the ‘auxílio emergencial’ (‘emergency aid’), has been paid to informal workers, microentrepreneurs, and single mothers (who get double the monthly R$600 rate). Government data show that by mid-June payments had reached over 63m Brazilians (30% of the total population), with total disbursements of the order of R$81.3bn (US$15.3bn).

Admittedly, there have been problems with the cash payments system, and some R$42m (US$7.7m) worth of fraudulent claims have been detected. But on the whole the payments are seen as limiting hardship for an otherwise unprotected segment of the population and preventing a much sharper fall in consumption levels (consumption represents accounts for 65% of Brazil’s GDP). Research shows recipient households have been receiving payments equivalent to about 78% of the prior average self-employed worker’s income.

A possibly unexpected outcome of this emergency aid is that government approval rates have edged up a little among the poor and among residents of the impoverished Nordeste region. With municipal elections now scheduled for November (pushed back from October because of the pandemic), there is an electoral interest in maintaining the emergency basic income. The government has been facing political pressure to extend the payments, notably from congress where federal deputies are susceptible to pressure from municipal authorities. After some contradictory information given by Bolsonaro and Guedes on various different occasions, the government confirmed on 30 June that the scheme would be extended for a further two months at least, at the same R$600 monthly rate.

The relative success of the scheme is opening up a wider debate on the social safety net. The corona voucher has been running alongside a well-established successful social programme, Bolsa Família, launched by the left-wing Partido dos Trabalhadores (PT) government of Lula da Silva (2003-2011). This is a conditional cash transfer (CCT) programme where poor households receive payments on certain conditions – such as ensuring that their children attend school and health clinics. On ideological grounds the Bolsonaro government is deeply hostile to Lula and all his work, but when it took office at the beginning of 2019 it recognised the popularity of Bolsa Família and kept the scheme going. At present Bolsa Família benefits around 13.4m families with average per capita payments of under R$200.

Political imperatives mean it is likely that the corona voucher scheme will get prolonged past the municipal elections. According to a number of reports, Guedes has spoken of merging a number of social programmes, including the emergency aid and Bolsa Família, into a single system, to be known as ‘Renda Brasil’ (‘income Brazil’). His idea is that it should work as a negative income tax. People earning above a certain income level will pay a positive income tax; those below that level will benefit from a ‘negative’ tax – in other words they will receive income-related payments. Guedes sees this as potentially part of a wider tax reform to be negotiated with the ‘centrão’ parties. It is not clear whether an agreement will be possible since the economy minister also wants to meet tough fiscal austerity targets.

None of these schemes amount to a universal basic income (UBI), the idea that the state should pay an unconditional monthly amount to all citizens. In richer countries supporters of UBI see it as a potential response to job losses through automation. Laura Carvalho, an associate professor of economics at the Universidade de São Paulo (USP), says that other schemes, offering minimum guaranteed income, might be more appropriate for Latin America. She notes that the potential expiry of the emergency aid payments just before the municipal elections may stimulate wider debate on the matter in Brazil.

Last May the United Nations Economic Commission for Latin America and the Caribbean (Eclac) made the case for paying a six-month basic emergency income (BEI) across Latin America, set at a level equivalent to the cost of one month’s basic necessities. Eclac said such a measure would benefit 215m people or 34.7% of the region’s population and cost around 2.1% of GDP. It would reach traditionally excluded vulnerable groups such as women, informal workers, paid domestic workers, migrants, and indigenous and Afro-descendent people.

UBI pilot in Brazil

On a small scale the Brazilian town of Maricá in Rio de Janeiro state, which benefits from oil royalties, has been running a universal basic income pilot for the last seven years, paying a monthly amount to about one third of the population (42,000 people) in a local digital currency known as the ‘mumbuca’, which can only be spent in local stores.