Robert Abdenur
Advisory Adviser to the Brazilian Institute of Ethics in Competition

Fernando de Holanda Barbosa Filho
Ibre / FGV Researcher

Some social processes that have had a direct impact on the informal economy are consolidating in Brazil. This impact can be explained by the persistent reduction in the economic pie of the informal slice, estimated since 2003 through the Underground Economy Index (IES).

Published by the Brazilian Institute of Ethical Competition (ETCO) in conjunction with the Brazilian Institute of Economics of the Getulio Vargas Foundation (Ibre / FGV), the index estimates the size of the production of goods and services deliberately not reported to the authorities in order to evade taxes or evade obligations.

The IES for 2013 is R $ 760 billion, or 15,9% of GDP. It is not little. It is more than Denmark's GDP and close to Colombia's. However, it represents a reduction of 0,8 percentage points in relation to 2012 and the lowest index ever recorded since 2003, when it was equivalent to 21% of GDP.

It reached 16,7% in 2012, when the rate of reduction in the shadow economy seemed to have stagnated, precisely because of some social processes, among which the most important are the low unemployment rate and the increase in the general level of education of Brazilians. Everything indicated that the growth of the formal labor market had reached its limit and, therefore, the share of the informal economy could be reduced at a very slow pace since then.

The low unemployment rate favors the growth of formal employment and, consequently, the reduction of informality. With population growth at lower levels, there are fewer people in the labor market and, therefore, a tendency to formalize employment to retain employees. In addition, between 2001 and 2011 there was an increase of 22 million people with formal education in the labor market, according to the National Household Sample Survey (PNAD).

With this scenario, informality should remain stable. But the unexpected acceleration of its decline may be rooted in other specific factors that should not be overlooked, such as the temporary payroll exemption for some sectors of the economy. This factor, in theory, must have impacted informality, although there is no way to assess its direct impact.

The government's efforts to create incentive mechanisms for certain sectors of the economy are commendable, and the current results reflect the desired structural changes in society, indicating how much the country's overall picture has improved.

It is important, however, not to lose sight of the possible impact of this tax waiver on tax revenues and, consequently, on the provision of public services. In 2012, the tax waiver was of the order of R $ 4 billion. For 2013, it is estimated to reach R $ 18 billion, while for 2014 the perspective is R $ 34 billion.

Measures like this certainly have a lot of value in balancing the economy, but they must always be analyzed from the perspective of reflexes in the short, medium and long term. It is necessary to look at tax reform more broadly, in order to allow a more lasting and horizontal tax exemption.

In reality, the exemption can serve as a starting point for a wide-ranging tax change. Adopted in isolation, only exemption, which is temporary and selective in nature, does not resolve the issue. But, if it is part of a set of measures, it could be the great key to change in the Brazilian economy.

In order to reach more definitive and less evanescent results, the Brazilian State can rely on three pillars. The first is to rationalize and balance taxes (in this case, the exemption covers a wider range of sectors). The second pillar is based on simplifying the payment of taxes (Brazil is considered one of the record holders for the time required to pay taxes). And, finally, the control of public spending, even as a way to offset the tax waiver.

The tax issue is a fundamental factor for the formalization of the economy. The barriers that stand between the taxpayer and the tax authorities do not concern only the tax burden, but the bureaucracy for the payment of taxes, which undoubtedly encourages tax evasion.

In order to contribute to the government's efforts to adapt the legislation to the current demands of Brazil, ETCO sent to the authorities in Brasilia some suggestions for tax simplification that include proposals such as the prohibition on the publication of a provisional measure on tax matters and a limit on the value of taxes. tax fines.

The initiatives already adopted by the federal government show sensitivity to the economic obstacles. The institution of Simples, the individual microentrepreneur and the very idea of ​​tax relief are some of them. The rigid labor laws, which are largely responsible for subterfuge aimed at reducing the cost of hiring, remain to be relaxed.

There is also a lack - and this is an effort of all - to make the population aware of the fact that the informal economy damages society as a whole, depriving governments of resources for public policies. Informality creates an environment of transgression, stimulates opportunistic economic behavior, with a drop in the quality of investment and a reduction in the growth potential of the Brazilian economy, and causes a reduction in government resources for social programs and investments in infrastructure. Indirectly, it alienates foreign investment and paves the way for crime.