Early Retirement Extreme Forums

Brazil just enacted the harshest austerity program in the world

http://www.vox.com/world/2016/12/15/139 ... -austerity

This doesn't seem so extreme to me. But then I am no great fan of moderation.

During the great recession, we followed the path of Japan, and it hasn't been the disaster I predicted. It will be nice to see a counterexample.

Starting with massive deficit spending, and limiting budget increases to inflation seems like a reasonable approach. It'll be years or decades before they even see a balanced budget, so I have a hard time seeing this as the Apocalypse promised by the author.

will be interesting. brute has no idea how Brazil could be fixed. but if any country is worth fixing, it's Brazil.

Yeah. I wish I had better numbers, but it will be worth watching.

I'm hoping bigato and any other Brazilian members contribute to this thread.

Education is the one thing Brazil has been good with and has created a larger middle class. Hard to imagine any positives by cutting the education funds by 1/3.

brute agrees that Brazil has many very well-educated young humans, but they can't find any jobs. at least not in Brazil.

But that's just it. The aren't cutting anything.

From a position of deficit spending, they are limiting increases to current spending adjusted for inflation.

They are already spending money they don't have, and will continue to do so. They are just limiting how much worse they will allow this to get.

It amazes me that a group that is so critical of people spending beyond their means are so comfortable with government doing the same thing.

It amazes me that a group that is so critical of people spending beyond their means are so comfortable with government doing the same thing.

From the article, it sounds like a significant portion of the problem is that companies and rich people are avoiding taxes, see quote below. Otherwise, I agree with you, in normal times governments shouldn't spend more than they earn. In my opinion a lot more government spending should be tied to inflation or similar so that every spending decision doesn't have to be an ideological battle (see the minimum wage for an example).

The exceptions to governments spending within their means as far as I know are in times of war and when additional government spending is needed to prevent a depression.

Brazil’s tax code is extraordinarily generous to corporations and the wealthy, and helps buttress its status as one of the world’s most unequal countries. Brazil’s highest income tax rate is just 27.5 percent — for comparison, US tax rates go up to about 40 percent, and in Scandinavia they can exceed 60 percent.

But Brazil’s tax code is especially regressive because of loopholes like the 1995 personal tax exemption that allows people to be shielded from income taxes if they own a company under certain profit investment conditions. Much of Brazil’s elite set up companies for themselves and channel the money they make via their livelihood through them. The result is that most of the income of the very rich in Brazil is not subject to personal income tax.

Carvalho estimates that if you closed tax breaks for corporations and the personal tax emption that the rich exploit, “that would cut the fiscal deficit projected for next year by half.”

http://www.tradingeconomics.com/brazil/indicators

Looks like debt is over 43 years of revenue, and deficit was 10.4% of revenue.

Any human would have been in bankruptcy long before now.

I agree, there is a chance of getting a bit more revenue, but the tax the rich mantra is likely to just lead to capital flight.

Maybe I'm wrong, but I don't think the rich of Brazil have strong ties to Brazil. Raise their taxes, they will just invest elsewhere. It's not like Brazil offers exceptional opportunity or safety.

And after the Brazilian socialists pushed to burn the rainforests in the 80-90's, I would think the unintended consequences concept would be pretty clear.

Carvalho estimates that if you closed tax breaks for corporations and the personal tax emption that the rich exploit, “that would cut the fiscal deficit projected for next year by half.”

So, if they taxed the rich and corporate world, AND there was no avoidance from said groups, the debt will still be worse next year...

Like I said, this horrible austerity program doesn't involve any real cuts. Reducing the anticipated increase in spending is NOT cutting spending.

@Riggerjack: Well, Brazilians are promised a new major crisis every week—this is, after all, a country with a rate of over 60,000 homicides a year (in a period of peace). Things are always just about to get worse somehow, but quantitatively rather than qualitatively—for example, our public hospitals already lack beds, drugs and even doctors; so, what would "worse" look like? More sick people crammed into hallways, laying on trolleys (or the floor)? Nothing new here.

Some things are easier to predict, however. Whatever happens, Brazilians will have lots of fun; there will be a lot of soccer and races to watch; it is said that a new year in Brazil does not really begin until after the carnival, which will certainly be as bright and colourful as always; parties will be held every weekend and every holiday—and as a Catholic country, there is a good number of holidays to daydream about (and if one of them happens to fall on a Thursday, we will probably extend it to cover Friday as well).

If the government needs money, it will probably start enforcing some laws, with the consequent increase of fines, and the population will adapt—as always. Perhaps new laws will be deemed necessary—last year, for instance, the powers that be decided that every car had to carry a chemical fire extinguisher, and the drivers who did not comply would be fined; people were having trouble in finding the contraption to buy, though, so the authorities went "never mind, then" on the matter.

My point is that Brazil is a rich country in many ways, so I believe that the problem is less about resources than management. If this new austerity program actually leads to a real change of attitude (for the government and the people), coupled with a fierce battle against corruption, and, yes, a major and thorough revision of our taxation system, eventually we will find ourselves far better off with "less" than we are right now with "more."

@George the original one: I beg to differ. In a race to the bottom, education in Brazil has been a serious contender for the first place—highly competitive against health and security, though they both put up a very good fight. Sure, a lot is nominally invested in the area, but our ubiquitous corruption schemes must be taken into account; moreover, pouring extra money into a scheme that is in itself faulty and based on wrong assumptions has surely not helped over the years—what Richard Feynman wrote in 1985 about education in Brazil has remained a precise description up to this point.

Brazilian students have been consistently stuck to the last places in international exams (e.g. PISA), and research data has indicated that 68% of Brazilians are functional illiterates (IBOPE, 2005)—including 62% of our university students (Instituto Paulo Montenegro and ONG Ação Educativa, 2012).

More Brazilians are indeed finishing high school and (with sacrifices) even college, collecting degrees and all that, and if this is what is being measured as "education," then your assessment is correct; otherwise, actual learning being the yardstick, Brazil has been in the dark for generations.

This may be changing, however. The same new government that came up with the austerity program is planning and announcing a reformulation of the high school system, which is purported to:

• Increase its current schedule from 800 hours to 1,400 hours a year;
• Go from a part-time to a full-time period;
• Make some disciplines optional (they are all mandatory at the moment);
• Offer training in trades (the most promising point, I would say);
• Offer college credits for the completion of certain disciplines.

Supposing that the execution will at least vaguely resemble the project—far from being a wise assumption here—there may be some interesting developments ahead. Nevertheless, that would account for the future; as for the past, the enlargement of Brazilian middle class had more to do with economic factors than with our racket of an "education" system—I cannot dedicate myself to the required research for supporting this assertion presently, however, so feel free to regard this as mere opinion.

Riggerjack wrote: Any human would have been in bankruptcy long before now.

This is a thought I have toyed with. Based on most measurements countries do not operate within the same constraints as person. For instance, country's don't only have 50-70 years to pay back accrued debts. They also have an almost infinite number of variables to play with compared to a human. So, I don't think using personal finance (person) guidelines to judge a country's finances is a valid comparison. I'm not commenting on Brazil, but on the overall model.

@Pagliaccio - You've got the inside view whereas I only have the view from outside, so your view is probably more correct than mine!

This is a thought I have toyed with. Based on most measurements countries do not operate within the same constraints as person. For instance, country's don't only have 50-70 years to pay back accrued debts. They also have an almost infinite number of variables to play with compared to a human. So, I don't think using personal finance (person) guidelines to judge a country's finances is a valid comparison. I'm not commenting on Brazil, but on the overall model.

Yes, it's more like the multi generational mortgages available in Japan.

Stealing from future generations to pay for today's consumption.

Or, concentrating wealth into the hands of the inheritors of today's savers/investors. If that is the model you prefer.

I honestly can't understand how someone concerned about income inequality can espouse deficit spending. When the funds borrowed will be paid back to the rich, with interest, then used in programs where the money will be "misalocated" resulting in more money going to the political class and rich (if you see them as separate).

All inefficiencies in government spending benefit the rich, and concentrate wealth. Deficits just add a back end to the deal.

Riggerjack wrote: I honestly can't understand how someone concerned about income inequality can espouse deficit spending. When the funds borrowed will be paid back to the rich, with interest, then used in programs where the money will be "misalocated" resulting in more money going to the political class and rich (if you see them as separate).

I'm not espousing deficit spending. At least not massive deficit spending. There are times when either Keynesian or Austrian polices are the right choice. Having dogmatic view of this is one of our current problems. All it does is exacerbate already existing problems (e.g., We should have done infrastructure spending much sooner after 2008, but politics prevented it.). Anyway, my main point was comparing a country to a person concerning debt is an incorrect model. The country's debt limit isn't infinite, but it's higher than a person's and as I stated in my previous post I'm not suggesting Brazil hasn't gone too far with debt. This is purely about the model.

The big difference is a country can always print more money (unless they are in a currency union) to inflate away the debt. This results in a transfer of wealth from savers to debtors and investors.

I have to agree with @riggerjack, in the UK I think servicing our debt is about 6% of government spending, money that could be better spent elsewhere.

Anyway, my main point was comparing a country to a person concerning debt is an incorrect model. The country's debt limit isn't infinite, but it's higher than a person's and as I stated in my previous post I'm not suggesting Brazil hasn't gone too far with debt. This is purely about the model.

Yes, I agree, national debt limits are much higher than an individual's.

That isn't my point. What I am saying is national debt payments are made to the wealthier classes. So arguing that deficits should be run, to help the poor/underclass is self defeating. Those are the same folks taxed to pay the interest on the debt.

Historically, there have been plenty of examples of counties not pursuing their national interest, because they were pressured by debtholders.

Keynesian effectiveness issue aside, routine deficits are bad policy.

Limiting spending growth to inflation seems a good way to start curbing that. If course just the idea of limiting spending growth will cause certain folks to predict the Apocalypse (see linked articles).

Isn't there a delay of effects that should be smoothed out by deficit spending? (I'm promoting cyclical deficit, not built in. )

Government promotes having kids with rebates (-) > increased school spending (-) > increased tax revenue (+) > healthcare (-)

I don't agree with the policies (as a single childless renter), or think it's possibleible to predict decades of budgeting. Something has to change tho.

I have recently read an article published by Bloomberg that I thought might widen your perspectives on this thread's object and Brazilian politics in general. Brazilians Want Their Own Donald Trump.

road to serfdom:
1.decadently ignoring real issues and drawing down political and financial capital for decades
2.unwashed masses get fed up when shit gets out of hand
3.strongman gets elected
4.feign surprise

or, as read recently on some alt-right website:

Hard times create strong men,
Strong men create good times,
Good times create weak men,
Weak men create hard times.