Author: José Pastore

Source: The State of S. Paulo - São Paulo / SP - NEWS - 11/05/2010

Election year is always a time of much illusion. It promises everything voters want to hear. This year, the classic proposals for labor reform will not be lacking. Most likely, the most discussed topic will be the well-known payroll tax exemption. In fact, hiring expenses in Brazil exceed 100% (see below the data for each type of expense and the percentage it represents on the salary. Source: Federal Constitution and CLT):

Group A (social contributions = 35,80%): INSS, 20%; FGTS, 8%; occupational accidents (average), 2%; education salary, 2,5%; Sesi / Sesc / Sest, 1,5%; Senai / Senac / Senat, 1%; Sebrae, 0,6%; Incra, 0,2%;

Group B (remuneration of time not worked I = 38,23%): weekly rest, 18,91%; vacation, 9,45%; vacation allowance, 3,64%; holidays, 4,36%; prior notice, 1,32%; sickness benefit, 0,55%;

Group C (remuneration of time not worked II = 13,85%): 13th salary, 10,91%; contract termination expense, 2,94%;

Group D (cumulative incidence = 14,55%): cumulative incidence in group A / group B, 13,68%; FGTS incidence on 13th salary, 0,87%;

Grand total = 102,43%.

Those who propose the release of payroll face a difficult challenge: what to cut? Note to the reader that there are four sets of expenses. I will focus my attention on this article on group A and its reflexes.

The expenses of this group support important public policies that cannot be discontinued. The 20% for the INSS goes to pensions, pensions and social assistance. The 8% of FGTS is crucial for financing relevant social projects (low-income housing, basic sanitation, etc.). The 2% of occupational accident insurance (on average) is essential to protect workers in cases of disability and death. The 2,5%, 1,5%, 1% and 0,6% that follow are intended for entities that maintain human capital training services in a country so lacking in qualified labor. Incra, in turn, has 0,2% to carry out agrarian reform, which is essential and behind schedule.

As can be seen, Brazil decided to “hang” the financing of important social programs on the payroll. Quite different was the option of the advanced countries, which support such programs mainly with the Income Tax.

I would like to clarify that the total contributions from group A are greater than the 35,8% indicated. Yes, because, in addition to making a perverse option, our leaders decided that all of these contributions would - as in fact do - cover Group B expenses, which generates additional expenses of 13,68%. FGTS, in turn, is levied on the 13th salary, generating 0,87%. In total, these incidences reach 14,55%, which, added to 35,8%, exceed 50%. In other words, direct expenditure and reflexes represent more than half of the salary.

Here's the point. As all these expenses are important for the mentioned programs, any exemption will have to find substitute sources that are up to the task and with the security that is provided by the payroll. Otherwise, the entities in question will be without resources to carry out their responsibilities. This means that a labor reform aimed at the urgent release of the payroll has to be carried out in the context of a tax reform.

As it turns out, talking is easy. Doing is difficult. But it's necessary. The choice made by the country increased what needs to be released - one of the most important factors of production, which is labor.

A well-done exemption can provide a healthy increase in wages, which is good for workers and the economy. I will keep an eye out to see if the candidates will have the courage to propose a labor reform along with the tax and, why not say, with the social security.

The reader must be thinking: If it is difficult to make one, what about making three? But, if everything is intertwined, what is the chance to make one without making the others?

José Pastore is a professor at FEA-USP