Informal Brazil

By ETCO
28/07/2004


By Glauco José
Court - Director of Fiesc - O Estado (Florianópolis) -
12/06/04


At the request of the Brazilian Institute of
Competitive Ethics (Etco), the consulting firm McKinsey conducted a study
(June / 2004) on the level of informality in the Brazilian economy. To the
McKinsey the effects of barriers to the formal economy and the level of informality
in Brazil are particularly serious, because they hinder the performance of
growth potential of the country. A little earlier, the World Bank (Doing
Business 2004) had already indicated that the informal economy is responsible for 40%
of Brazilian gross national income, against 20% in Chile or 25% in Argentina. AND
50% of the Brazilian labor force (except rural labor, where, due to their
peculiarities, informality approaches 90%, according to PNAD data),
against 30% in Portugal or 38% in Chile.


 


According to the study, two are the
causes that, in Brazil, stand out in this issue: (i) the costs associated with the
formalization of activities, mainly regulatory and tax, and
(ii) the low capacity of public institutions to inhibit and repress
informality.


 


In the end, it all comes down
the high and disproportionate burden that formal businesses have to bear in order to
operate. It is that the complex and centralized regulatory bureaucracy in Brazil, which
continues to advance insatiably, forcing most of the leaders to divert
its focus away from the objectives that determined the creation of companies, has,
also, a collecting nature. Norms, regulations, ordinances, instructions,
decrees, are downloaded all the time, in order to transfer more resources than
private sector to the public sector. Since this is the environment, institutions
take the opportunity to attribute formal administrative functions to taxpayers
typically public, continually increasing their charges with the
compliance with ancillary obligations.


 


Now, the name of this game is cargo
that in developing countries, such as Brazil, is usually up to
26% on GDP. In Russia, for example, it is 26%, but in Argentina it is 21%, in
Mexico 17% and China 15%, while in Brazil it is 34% (2001 data;
currently the Brazilian tax burden is already above 36%), which is equivalent to
a developed country fee. In the United States and Ireland it is 29%, in
Australia 32%, Canada 35% and Germany 36% (source: IMD Competitiveness
Yearbook 2003, included in the McKinsey study).


 


Informality in Brazil is
directly related to the exaggeration of the tax burden (rates and bureaucracy
excessive). The high costs of formal activity push taxpayers to
informality, which undermines the economy and competitive conditions
formal companies. Let us not forget that a preponderant portion of those
working in the informal sector is forced to do so, due to the lack of opportunities in the market
formal, this one increasingly suffocated by the regulatory and tax burden
ascending. It's time to turn that game around. We are already too
late!


See also:


 Studies and Research: McKinsey Study