BPC is not compatible with the Budget, says Inter

The BPC (Continuous Payment Benefit) has grown between 60% and 70% in real terms in the last four years and today represents one of the main challenges for the balance of Brazilian public accounts.

The assessment is by Rafaela Vitória, chief economist at Inter, who analyzed the data presented in a joint report by the Ministry of Planning and Budget and the Ministry of Finance.

According to the document, two expenses stood out negatively: the R$14 billion related to the BPC and the R$11.5 billion in social security benefits.

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For Rafaela Vitória, BPC is the program that presents the greatest lack of control over its growth.

"This may be the government's benefit program today with a total lack of control over its growth," he said.

Accelerated growth and perverse incentive
The program grows at around 15% per year in real terms, a rate much higher than that of revenue, which compromises the budget forecast for the coming years.

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Rafaela Vitória also highlighted a structural problem in the design of the benefit: as it is aimed at elderly people without income, the BPC would end up creating a disincentive to social security contributions.

"We are starting to see this incentive of not contributing to Social Security because this assistance is practically guaranteed through the BPC", he explained.

For her, this incentive needs to be corrected, at the risk of undermining the effects of the Social Security reform.

"Today is not compatible with our budget, unfortunately", he concluded.

New programs and fiscal credibility
When asked about the programs recently announced by the federal government, Rafaela Vitória observed that most of them use funds, credit subsidies and public banks, which avoids a direct impact on fiscal.

However, the economist warned that the set of measures - fiscal and parafiscal - compromises the credibility of the adjustment.

"The government, as it creates programs outside these rules, takes away its own credibility in controlling fiscal adjustment," he said.

According to her, this scenario discourages inflation expectations and is reflected in the interest rate on bonds issued by the Treasury, which would be above 7.5%.

Rafaela Vitória also commented on the defense of gradualism in fiscal adjustment. She recognized that drastic changes from one year to the next are not viable, given the rigidity of the Brazilian budget, and that gradualism was present in previous measures, such as the spending cap and the new fiscal framework presented in 2023.

However, he made an important reservation: "The government has not made any progress, even gradually, in fiscal adjustment in the last four years."

For the economist, all the gains via revenue were consumed by earmarks and increases in discretionary expenses. The necessary adjustment would be at least two percentage points of GDP (Gross Domestic Product) for the country to move from an estimated deficit of between 0.5% and 0.7% to a surplus of between 1% and 1.5%.

See the 5 signs that Brazil's public accounts are at risk

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Source: CNN