Wrong argument


Author: Cláudio Haddad

Source: Valor Econômico, 01/11/2007

One of them is the proposition that the number of employees of the Federal Revenue Service in Brazil falls short of the country's needs. This same argument can be found in a document prepared by the Union of Internal Revenue Auditors (Unafisco) entitled "Contribution of Internal Revenue Auditors to the Tax Debate" (1). The number of employees in Brazil is compared with that of some other countries in terms of population and geographic area, concluding that in both criteria the Brazilian relationship is low, with Brazil having few auditors for its needs. That Unafisco presents this argument is understandable, since class bodies, in general, defend their own interests. But that it be endorsed by government economists, whose analysis should be much more rational and technical, is worrying.

Using the data of the auditors and comparing Brazil with the United States, two countries of great territorial extension and a large population, Brazil would have 18 thousand civil servants in 1998, against 114 thousand in the United States. The ratio would be 0,12 servers per thousand inhabitants and 2,1 per thousand km2 in Brazil, against 0,4 and 11,6, respectively, in the United States. Can these indicators conclude that the number of servers is poorly sized in Brazil? Of course not. Population and territorial area may even be relevant in determining the ideal number of employees of the Revenue. These two variables, however, are much less important than the number of contributors, which varies with the characteristics of each country. In the United States, all individuals who earn income pay tax, unlike Brazil, where only those who are above the exemption limit pay. There are 134 million taxpayers in the United States, against 18 million taxpayers in Brazil, of which only 6,2 million with tax payable, generating a ratio of 2,9 servants per thousand effective taxpayers in Brazil, against 0,85 per thousand to the United States. The number of reporting companies in Brazil (2,8 million) is higher than in the United States (2,5 million). But, of the Brazilian taxpayers, only 179 thousand do so for real profit, the rest being in Simples or presumed profit. The ratio would be 101 employees per thousand legal entities that contribute to real profits in Brazil against 46 per thousand in the United States. In other words, none of the relations seems to indicate that the number of employees of the Federal Revenue is below the country's needs.

Another example of mistaken argument is the claim that the increase in the payroll of civil servants is mainly due to retirees, who should be excluded from the analysis of the quantity and cost of employees, as they do not contribute to the generation of the service provided. In fact, between 1995 and 2006, expenditures on active federal government employees increased by 165%, against 277% on inactive workers and pensioners. But why should retirement, which, as well as other benefits such as stability be an integral part of the employment contract, should not be considered as an employee benefit and a cost to the government? Given the generous retirement rules in the public sector (still in effect, as recent retirement has not been regulated), an employee is often paid more when inactive than when active. Would he be willing to work for equal pay without retirement if he voluntarily transferred to the private sector, or would his salary have to go up to allow him to contribute to an equivalent income? The higher the retirement in the future, the lower the salary in the present and vice versa.

The Brazilian State spends a lot and badly

Data on total public sector spending is not readily available. In 2006, tax collection in Brazil reached 34% of GDP, other government revenues (dividends, rents and others) at least 5% and the nominal deficit was equal to 3%. Therefore, total spending, including interest, was at least 42% of GDP. Of these, at least 32,5% of GDP was spent on consumption, pension and transfer expenses, excluding interest. In the same year, the average government expenditure for 28 OECD countries was 43,8% of GDP, with 32,3% of GDP being spent on consumption and social security. In other words, Brazilian public sector spending is comparable to that of an average OECD country, whose per capita income is five times higher. For six countries, Argentina, Chile, Korea, Colombia, Mexico and Russia, more similar, in per capita income than Brazil, the IMF data for 2004 indicate an average of public spending equal to 19,4% of GDP. (2 ) Although this information may be underestimated and assuming a 50% margin of error, the average expenditure of these countries would be well below the Brazilian level.

The main point is not so much big or small government, which in a way depends on the preferences of each one, but efficient government or not. The government claims that the high volume of public spending is essential to solving our social problems. But the Human Development Index (HDI) of the six countries mentioned above, whose governments spend in relative terms much less than Brazil, is higher than ours. How is it possible that with the government spending more than a third of GDP on consumption and transfers, the Brazilian HDI is still so low? Would it not be advisable, before the government suggests an increase in expenses, to make a critical analysis of the composition, the incidence of expenses and the efficiency of the programs in relation to their cost?

The Brazilian State spends a lot and badly. For the sake of the debate, those who disagree with this proposition are expected to have better quality arguments than those presented so far.

1 Available at www.aggio.jor.br/jornal29/cartilha.pdf

2 IMF, “International Financial Statistics”

* Claudio Haddad is CEO of Ibmec São Paulo and Chairman of the Board of Veris Educacional SA Writes, every two weeks, on Thursdays