Bolsa Familia after the Demise of the CPMF tax: extension rather than extinction
Keeping Brazil’s premiere social program afloat
A resounding victory for Lula
To Our Readers
This press memorandum is a follow-up to COHA’s December 5th, 2007 ‘Bolsa Família at Risk’ paper on the same subject. Link to the original story: http://www.coha.org/2007/12/05/brazils-bolsa-familia-at-risk/
Bolsa Família is the Lula administration’s premier social justice program; from all sides it has been viewed as a huge success, having brought a surge of laurels’ for the Brazilian president. With over 36 million Brazilian’s suffering from poverty and malnutrition, and with a daily Caloric consumption falling under the minimum 2,200 daily dose of calories. Bolsa Família is part of the Brazilian governmental welfare program, Fome Zero. Bolsa Família is a social program that provides financial aid to poor and indigent Brazilian families with the condition that the children must attend school and be vaccinated. Several months a crisis emerged on how the Bolsa Famíilia program would continue to be founded, after the Brazilian Senate voted against continuing the tax that largely financed the program.
On December 12th, the Brazilian Senate voted against the renewal of the Provisory Contribution over Financial Movements tax (CPMF), thus causing a $20 billion shortfall in the Lula administration’s expected budget for 2008 (Agência Estado, December 13, 2007). Key members of the government had warned that the end of the CPMF tax would be catastrophic for government-funded social programs, especially to the administration’s flagship initiative, the Bolsa Família program. Yet, to the surprise of many, just two weeks after the demise of the CPMF, President Lula issued a decree extending the Bolsa Família’s coverage to families with children as old as 17 years (MP no 411 of December 28, 2007). The million dollar question now is: how was Lula able to expand the Bolsa Família program at the same time that the program lost its main source of funding, the CPMF tax?
Either, Or
Regarding the end of the CPMF tax, state representative and former Minister of National Integration, Ciro Gomes, darkly forecasted that “to terminate the CPMF is to terminate the Bolsa Família; this is what they [the opposition] want but does not have the courage to say” (Jornal Hora do Povo, September 24, 2007). A similar position had been adopted by the Minister of social development and hunger combat, Patrus Ananias, who is in charge of the day-to-day management of the program. “If the CPMF ends, the Bolsa Família might end. … We would look for other sources, but we would certainly see a visible loss to the Bolsa Família” (Agência Brasil, September 4, 2007). The concerns over Bolsa Família boosters were not unfounded; in 2007, $3.75 billion of Bolsa Família program’s total $4.3 billion budget, or 87 % of the program’s funding was in fact derived from this tax. That prompts the question of how can President Lula afford to increase the administrative costs of the Bolsa Família at the same time that the program lost about 87% of its funding.
The most obvious answer to the budget problem, and perhaps best way to cope with some of the Bolsa Família programmatic costs, would be to raise other taxes, but this appeared to be off the table when President Lula rushed to affirm after the CPMF failed that: “There aren’t reasons to announce new taxes” (Reuters, December 17, 2007). This promise, however, did not last long: just two days into the new year, both the Social Contribution over Liquid Profit (CSLL) and the Impost over Financial Operations (IOF) were raised. Finance Minister Mantega defended the President by noting that what President Lula had committed to was “not to make changes in the tributary area in 2007, which he didn’t; we are making it in 2008;” (O Globo, January 02, 2008). Yet, these increases in imposts only generated an expected $10 billion gain, still well below the expected $20 billion lost from the termination of the CPMF taxation. Therefore, with this tax raise, the administration could be expected to cope with only half of the budget’s losses due to the end of the CPMF (Agência Brasil, January 7, 2008). By itself, this is not enough to motivate President Lula’s recent assurances that the funds required to underwrite the Bolsa Família program are secure and that the Bolsa Família could be expanded to the families of older children (Café com o Presidente, January 07, 2008).
Locking up the Funding
The President’s confidence in securing the funding, needed for not only maintaining, but also extending, the Bolsa Familia appeared rooted in the fact that no Brazilian administration has ever collected as much revenue as was achieved by the Lula administration in 2007. Moreover, 2008 holds prospects for a continued expansion of revenue, despite the end of the CPMF. According to the secretary of the Brazilian Internal Revenue Service (Secretaria da Receita Federal do Brasil) Jorge Rachid, the increase in revenues derives both from improvements in Brazil’s economic growth and from new policies raised against tax evasion (O Globo, January 18, 2008). While Brazil’s real GDP growth in 2007 was estimated as 4.7%, significantly above the 2.7% estimated figure between 2002 and 2006, the Brazilian Internal Revenue Service had screened 80% more individuals and enterprises in 2007 than in 2006 (The Economist Intelligence Unit, January 23, 2008 and O Globo, January 18, 2008). As a result, revenues in 2007 grew 11.09%, that is, $31 billion, almost double the tax collected with the CPMF.
Thus, there are sound reasons to believe that Lula’s tranquility in backing an increase in the Bolsa Família’s administrative cost by extending the program to older children, despite the loss of the program’s main source of funding, may be based on an overall increase in revenues, rather than new forms of taxation. Still, as was previously examined in the author’s “Bolsa Família at Risk” piece, until the government starts to share the administrative costs of the Bolsa Família program with the private sector, perhaps through incentives to the microfinance industry which could supplement the government micro-grants with microloans, political shocks, like the end of the CPMF, will pose a constant threat to the program’s existence.
This analysis was prepared by COHA Research Fellow: Thomas Alvares de Azevedo e Almeida
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