ETCO and Ibre / FGV: the underground economy slows down


O Globo Online - Rio de Janeiro / RJ - ECONOMY - 10/07/2013

Despite low GDP growth, the Underground Economy Index continues to decline, albeit at a slower pace than in recent years

The Underground Economy Index (IES), released today by the Brazilian Institute of Competitive Ethics (ETCO) in conjunction with the Brazilian Institute of Economics of the Getulio Vargas Foundation (IBRE / FGV), reached the mark of 16,6% at the end of 2012 , which represents a reduction of 0,3 percentage point in relation to the previous year.

In absolute values, the estimate is that the underground economy in 2012 - the production of goods and services not reported to the government, which is outside the national GDP - has exceeded R $ 730 billion.

Source: IBRE / FGV and ETCO

"In general, despite the reduction in the rate of decline of the index, the result is still positive, as it is necessary to take into account that, even with the low performance of the economy in the year, informality continues to fall", says the researcher from IBRE / FGV Fernando de Holanda Barbosa Filho.

Despite the positive reading, in the last two years there has been a slowdown in the rate of decline of the underground economy in the country. “This slowdown is basically due to the decline in formal contracts by the industry and the growth of the service sector, which is intensive at hand and is very dynamic, but has higher levels of informality than the industry ”, explains Barbosa Filho.

"In spite of the government's effort to create measures that facilitate formalization, especially in the sectors of commerce and services, where small entrepreneurs predominate, membership levels in these sectors are still quite low", evaluates ETCO's Executive President, Roberto Abdenur.

Research recently released by SPC Brasil and the National Confederation of Shopkeepers showed that almost half (49%) of the interviewees do not know what to do to regularize their business. In addition, among those who want to expand the business this year, the majority do not intend to formalize it because they fear bureaucracy, falling income and new costs.

For Roberto Abdenur, “in addition to these issues, it is worth remembering that, since the end of 2012, it is observed that the growth of the formal labor market has reached its limit due to two major factors: the rigidity of labor laws and the low level of Brazilian schooling ”. He points out that “if, on the one hand, softening rigid labor laws and reducing red tape are increasingly essential tasks, investing in education is much more than a goal, it is an obligation for a nation that claims to be strong and positioned among major economies in the world ”.

Informality, in addition to its relationship with organized crime and precarious working relationships, brings direct damage to society, creates an environment of transgression, stimulates opportunistic economic behavior, with a drop in the quality of investment and a reduction in growth potential of the Brazilian economy. In addition, it causes a reduction in government resources for social programs and investments in infrastructure.