Coronavirus Power

What happens when Brazil’s coronavirus emergency aid ends?

Brazil cannot afford its Covid-19 emergency aid program. But how can the country avoid leaving tens of millions without any income at all?

“BRL 600 (USD 110) is too much. Someone in the Economy [Ministry] mentioned BRL 200. I think that is too little, but we can reach a middle ground,” said President Jair Bolsonaro on Wednesday, when talking about his wishes to extend the coronavirus emergency salary Congress created back in March. 

Forced into action to offset the economic effects of the Covid-19 pandemic, Brazil created the broadest and largest cash-transfer project in its history. In just five months, the Treasury Department has spent BRL 254 billion (USD 46 billion) to provide income to vulnerable people who would otherwise have next to no revenue.[restricted]

Between April and August, roughly 65 million people received the benefit — including informal workers, individual microentrepreneurs, self-employed or unemployed workers. In other words, people whose bread-winning abilities were crushed by the months-long halting of the in-person economy, and who would not be able to make ends meet without government aid.

The positive effects of the emergency salary are impossible to miss. It prevented around 23 million Brazilians from instantly falling into extreme poverty and boosted Mr. Bolsonaro’s approval rating to its highest level since taking office. The data comes from a study by the Solidarity Research Network and considers the poverty line threshold at per capita revenue of USD 1 per day.

While five percent of the Brazilian population remain under this line, this rate would be at 17 percent if not for the government-sponsored benefit. And while USD 110 doesn’t go a particularly long way, it is more money than some Brazilians have ever seen in a single month. For one-third of the population, revenue increased during the pandemic thanks to the emergency salary — which for these households works as a beefed-up version of other government programs.

“Bolsa Família [Brazil’s flagship aid program] was massively underfunded. The aid offsets the effects of the job crisis, but the catastrophic thing is that [beneficiaries] will have no jobs to return to once the aid stops,” warns Rogerio Barbosa, a sociologist who co-authored the study.

To give an idea of how bleak prospects seem for a sizable portion of the Brazilian people, the coronavirus aid accounts for 97 percent of the income for the country’s poorest 10 percent. And it remains a very significant source of money for most populational deciles. “There are 14 million people currently with no source of income. Zero. We are in uncharted waters,” explains Mr. Barbosa.

And while it seems impossible to argue about positive effects of the aid program, the truth is that at a cost of BRL 50 billion per month, the government simply doesn’t have the fiscal space to maintain it indefinitely. For comparison sake, paying out the monthly stipend for an entire year would cost BRL 600 billion, twice the market value of giant state-controlled oil firm Petrobras.

The much cheaper Bolsa Família program only requires BRL 30 billion per year, granting an average stipend of BRL 188 each month to 13 million households.

The post-emergency salary Brazil

The government must figure out (1) how — and for how long — the program will be extended; (2) and how to transition to a world in which the aid is no longer paid.

Economy Ministry officials support distributing payments of no more than BRL 300, while Congress is pushing for a higher amount. 

That tug of war mirrors what happened when the program was created. The government initially proposed a BRL 200 aid, before lawmakers upped the ante to BRL 500 per month. In a bid to save face and not lose ownership of the program, President Bolsonaro one-upped Congress and settled at BRL 600. And he is now reaping the benefits of this decision.

But it is crucial to point out how Brazil’s fiscal rules will define the future of emergency aid. Any extra payment will have to be supported by the so-called “War Budget” — a sort of parallel budget approved specifically for coronavirus-related policies. Unless the government makes a U-turn on its pro-austerity discourse — and Congress allows this change — this extra funding will end on December 31.

Meaning that, in an optimistic scenario, millions of people will lose their entire source of income in January 2021. Poverty and inequality rates could skyrocket, which could in turn cause an uptick in violence rates and affect the president’s popularity. 

A long-term solution in sight?

The political results of the emergency salary have forced President Bolsonaro to change his stance on cash-transfer policies — something he once called a cash-for-votes graft scheme. Now, Mr. Bolsonaro wants to create a Bolsa Família program to call his own, which some experts say could be his ticket to re-election if well executed.

In June, ultra-liberal Economy Minister Paulo Guedes announced the creation of a broad cash-transfer initiative entitled Renda Brasil (Income Brazil), billed as an extended version of the Bolsa Família program. However, the administration has yet to announce any detail of how or when it will come to effect.

The Economy Ministry’s idea is to merge existing social projects in order to free up the budget for welfare programs. 

But economist Daniel Duque, from think tank Fundação Getulio Vargas, is skeptical about the chances of replacing the emergency salary with similar effects. “There is nothing the government can do that will resemble the emergency salary. Renda Brasil, even if it is very successful, will reach BRL 50 billion per year. That is one month’s worth of the current coronavirus benefit.”

Rogério Barbosa, a sociologist from the Solidarity Research Network, thinks the government doesn’t have a concrete plan, financial impact studies, or detailed rules for a new program. He too warns that it would be dangerous to merely put an end to the emergency aid.

“There are alternatives, reviewing corporate tax exemptions, even increasing the  public debt. This cost is unsustainable in the long run, but a transition needs to be planned, as the damage of a sudden end to the program will be considerable. Poor Brazilians will not be able to make it simply by returning to Bolsa Família. Can you imagine 14 million families without any income? They used to have salaries. How will they live with BRL 89?”

For Mr. Duque, the ideal scenario for continuing the gains made by the emergency aid would be creating a universal basic income

“We are far from a basic income program, both in fiscal capacity and in planning. There has been no in-depth discussion on the issue, which appears to be ruled out by government officials. A gradual implementation would be necessary, with many fiscal reforms along the way, moving toward the unification and expansion of current social programs,” he says.[/restricted]

By José Roberto Castro

José Roberto covers politics and economics and is finishing a Master's Degree in Media and Globalization. Previously, he worked at Nexo Jornal and O Estado de S. Paulo.