Author: ETCO

Source: ETCO Magazine, No, 16, September 2010

The economy
Brazilian underground hides an entire Argentina. According to the study
“Estimation of the Size of the Underground Economy in Brazil” produced by
Brazilian Institute of Economics (Ibre) of Fundação Getulio Vargas, for ETCO,
circulated informally last year, 578,4 billion reais, the equivalent
to the GDP of the neighboring country. This huge amount of resources corresponds to 18,4% of the
Gross Domestic Product of the country, according to the estimate of Ibre / FGV.

This is money that escapes state control and encompasses informality
in the labor market and the production of goods and services by economic agents
who seek to reduce their costs and thereby increase their profits. "These
undeclared activities to the government seek to evade taxes, contributions to
Social Security, labor laws and regulations, and avoid costs
arising from compliance with the rules applicable in a given activity ”, says
Fernando de Holanda Barbosa Filho, Ibre researcher and responsible for
study.

Around the informal activity, the street vendor stand, the points of sale
irregularities also flourish the sale of drugs, stolen products or
smuggled, in short, a whole illicit market. “But there is no
direct variable that also allows the estimation of illicit activities, therefore the
our estimation excluded them and concentrated on seeking the average of the size of the
Underground Economy obtained by two methods: monetary and informality in the
labor market, ”adds Barbosa (read boxing).

The Underground Economy index was estimated using a historical series of
statistical data from 2003 to 2009. The study shows that the estimate of the
Brazilian Underground Economy in 2003 was equal to 21% of GDP and came in a
gradual reduction until 2009, when it registered 18,4% of GDP. Despite the reduction
as a fraction of GDP, in real values ​​there was an increase of 10,5% in relation to the
2003, when it reached R $ 523 billion. “It shows that the economy
growth continues to grow, but the good news is that it grows less than GDP
and loses ground as a proportion of GDP ”, observes Barbosa.

THE ILLEGALITY NUMBERS
Size of the Underground Economy in millions of
real and as a% of GDP

For Professor André Montoro, President of ETCO, reducing the size
of the Shadow Economy as a fraction of GDP is an advance, albeit a moderate one. That
reduction is a result of the combination of several factors, such as a modernization
and the change in the growth regime of the Brazilian economy. "Today
credit has become important for companies that want to grow
as for the worker who wants to consume, ”says Montoro. The worker
feel more encouraged to look for a job with a record in order to have
access to credit, whether payroll or real estate. “For companies to
credit expansion brings the need to formalize, since the
financing for informal companies is almost nonexistent ”, he adds.

An important factor in reducing the size of the underground economy as
proportion of GDP is the population's awareness of the losses of
informality and the connection of this underground economy with crime. That
awareness, demanding invoices and not buying products of illegal origin,
is helping to reduce the weight of the underground economy.

 

Analyzing the study data showing a reduction in the underground economy
as a fraction of GDP from 2003 to 2009, Luiz Guilherme Schymura, Director of Ibre /
FGV, says that “Brazil is modernizing, we are clearly experiencing a
moment of transition with some disruptions and a greater effort is needed to
overcome these indicators ”.

HIDDEN WEALTH
Size of the Shadow Economy as% of GDP
quarterly

Ambassador Marcílio Marques Moreira, President of the Advisory Council
ETCO, adds its voice to that of Schymura: “The Underground Economy in Brazil is a
inheritance of a country that is still institutionally underdeveloped, little mature in the
social point of view. From the point of view of the individual it would be necessary to
change in the face of leniency with transgressions of all kinds, both in political
as in the economy. ” The Ambassador recalls that in the political field there are some signs
recent improvements like the Clean Sheet Law, but “we need a law
of clean records also for those who work in the economic area ”, says Moreira.

Due to its size, the Underground Economy causes countless losses to those who live,
produces and consumes in the country. After all, it is a substantial amount, of almost 600 billion
of reais circulating in illegality. The government loses a large amount of
resources. If the tax burden of the Underground Economy is similar to that of the rest
economy, that is, 35%, means that there are more than 200 billion reais of
collection that is lost. The consumer is harmed because he has no guarantees of
that product purchased on the informal market will match your
expectancy. The Consumer Protection Code is not respected in this Economy
Underground.

Another that loses with the Underground Economy is the good producer, the one who
obeys the law, because it faces an imbalance of competition. This has a
very serious impact on the economy. Illegal activity is a stimulus for
opportunists, companies or entrepreneurs appear looking to earn money by
through transgressions and not quality investments. Informality attracts
opportunistic and away good investors. And this is terrible for the country, because
reduces our growth potential, our potential to generate jobs and income.
The ETCO President warns: “It is important that the population is attentive
losses caused by the underground economy. It is necessary to reduce the
bureaucracy, reduce the tax burden in order to make it easier to
compliance with tax and labor obligations.

In addition, it is necessary to establish more agile and easier mechanisms to
inspection of these obligations ”.

In an effort to combat informality and unfair competition, ETCO operates
on three fronts and with three strategies. “We seek to stimulate studies and analyzes
on the Underground Economy, its causes and relations with the formal economy for
increase our knowledge of the problem. ”

 At the same time, ETCO seeks to raise awareness among the population and
specific issues - such as the public and private sectors - on the losses generated by
Underground Economy and the advantages of competitive ethics. It also proposes
and supports public and private initiatives that help reduce the economy
Underground. These actions can be either in the sense of facilitating compliance
the law, as well as reducing the tax burden, labor bureaucracy and
support for initiatives that improve inspection and punishment of offenders.

At the table, during the presentation of the study, André Montoro, President of
ETCO,
Ambassador Marcílio Marques Moreira and Luiz Guilherme Schymura, Director
from Ibre / FGV

Production deviated from legal frameworks, surreptitious, evading taxes and
labor obligations, occurs to a greater or lesser extent also in countries
developed and developing countries. If in other countries informality is also
a burden for those who work, live and produce within legal standards, for those
Brazilians, it needs to be clear that only the repressive dimension, with more
inspection is not enough to combat the voracity of this economy
develops contrary to the norms. “If everyone decides to be a profiteer, only
following the law at the sight of inspectors, a society is not built ”, says
Montoro. Every citizen must be clear that respect for the rules is good for him,
for your family and for the country.