Brazil austerity move slammed as disaster for the poor

Critics say government bid to pull country out of worst recession in decades with drastic measure hurts poorest most.

Brazil slums
Social inequality in Brazil is among the highest in the world [Reuters]

Sao Paulo, Brazil – The government’s attempt to pull the country out of its worst recession in decades via a drastic austerity measure has been blasted by critics – including a UN special rapporteur – as a disaster for the poor.

The constitutional amendment known as PEC 55 passed the final vote in Brazil’s senate on Tuesday by 53 votes to 16 and will see federal spending on health, education, infrastructure and science and technology frozen for up to 20 years – and only adjusted for inflation.

Laura Carvalho, a professor of economics at the University of Sao Paulo and a columnist for the Folha de Sao Paulo newspaper, said freezing spending while the population is still growing will result in a per capita investment fall per user, causing services to deteriorate.

“It’s a really tragic scenario, especially for the most vulnerable part of the population who rely on social programmes and public health and education,” she said.

Brazil Senate approves controversial austerity measures

Health and education are state provided in Brazil and while they remain precarious and underfunded, they are a lifeline for millions of poor Brazilians.

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President Michel Temer – the former vice president who came to power six months ago following the controversial impeachment of former president Dilma Rousseff – told local press after the vote the amendment will take Brazil out of recession.

“I want to register my thanks to the National Congress,” he said, referring to the move as “a victory”, a sentiment echoed by many market-leaning economists.

“The PEC 55 is fundamental,” said Jose Marcio Camargo, a professor of economics at Rio de Janeiro’s Catholic University and fellow at the Rio-based Millennium Institute, a liberal think-tank.

“It will return Brazil to growth by taking it out of a spending trajectory that is completely unsustainable in terms of growing public debt.

“A constitutional amendment like this that is difficult to overturn shows a commitment to fiscal discipline that can regain the confidence of the market,” he added.

Brazil continues to be mired in economic crisis, the result of falling commodity prices and a huge corruption scandal at the state oil giant Petrobras. GDP shrank by 3.8 percent in 2015 with similar central bank predictions for 2016 while unemployment stands at a recent record high of 11.8 per cent.

The fight for Brazil’s future

Philp Alston, United Nations special rapporteur on extreme poverty and human rights, warned the amendment threatened to derail years of significant gains in social progress and “further increase inequality in an already very unequal country”.

“Services are terrible here as it is,” said Luciana Bispo, a youth worker at Morro dos Macacos community, in Diadema, a poor outskirt region of Sao Paulo. “Youth are already excluded from the job market because of poor education, with the PEC, this will only get worse.”

Opinion polls show only 24 percent in favour of the austerity package with 63 percent against. It will last for 20 years, with a clause to take it out after 10.

In order to overturn or implement a constitutional amendment, it’s necessary for three-fifths of lawmakers to agree to vote, but given Brazil’s fractured politics – more than 30 parties, many lacking any coherent political ideology, most deeply scandal plagued – this seems difficult at best.

‘Pushed without public debate’

“It was pushed through extremely quickly, without public debate, which was a strategy of the government because it was so unpopular,” said Pablo Ortellado, a professor of public policy management at the University of Sao Paulo.

“Brazil is a very divided country, but one of the few things that unites people is the wish for better public services.”

Carvalho told Al Jazeera the measure will not create growth and said the recession is because of falling tax collection revenues, caused by unemployment and large corporate tax breaks given during the Rousseff administration, not overspending.

 Brazil approves controversial austerity measures

“Revenues are falling and the PEC prevents any possibility to recover with government intervention,” she said. “Long-term stagnation seems to be the scenario.”

Carvalho cited a series of alternatives, including bringing back a 15 percent tax on dividends for company owners and shareholders abolished in 1995, removing corporate tax breaks she estimates at $20bn a year, and addressing Brazil’s regressive tax code, which has a top rate of just 27 percent – much lower than the US or Europe. This year’s deficit target is $50bn.

The amendment comes at a crisis point for the six-month-old Brazilian government, which was already scandal plagued, unpopular, and – having not been elected – considered illegitimate by many having taken power through an impeachment process decried by former president Dilma Rousseff and her left-leaning Worker’s Party as a parliamentary coup.

Temer is now reeling from multiple corruption accusations, having been mentioned by two former executives in a plea bargain of construction giant Odebrecht – the company at the heart of the Petrobras graft scandal – and another accusation that he pressured a former minister in order to help a political ally secure a luxury apartment investment

Polls show 63 percent of Brazilians want Temer to stand down before the end of 2016, in which case direct elections would be called. If he doesn’t make it until the end of his term in 2018, when general elections are due, indirect elections will be held where congress will choose a candidate.

“This is the most unstable period in 25 years, since the impeachment of Collor [president in 1992],” said Mauricio Santoro, a political scientist and professor of external relations at Rio de Janeiro state university.

“It’s a real possibility that Temer won’t make it until the end of his term.” 

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Santoro expressed doubt, however, that the constitutional amendment will be effective for 20 years.

“What is in the law, what is in the constitution is one thing, how policy is conducted in practice is another,” he said. “I don’t believe it will be in force for all of the 20 years.”

Shortly after the amendment was voted in, Temer tweeted that US president-elect Donald Trump called to congratulate him. Meanwhile, protests erupted across the country.

In Sao Paulo, protesters attacked the Federation of Industry of Sao Paulo (FIESP) building with rockets and fireworks. The federation had mounted a visible campaign pushing for Rousseff’s impeachment.

“The PEC doesn’t favour us – poor people from the periphery. Our conditions are bad enough and with the PEC, they will only get worse,” said Guilherme Nogueira, a high school student who attended one of the protests.

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Source: Al Jazeera