Introduction
The Organization for Economic Cooperation and Development (OECD) has called on Brazil to reassess its mandatory expenditures and dismantle trade barriers to boost the potential growth of Latin America’s biggest economy.
Reconsidering Mandatory Expenditures
The OECD recommends that Brazil takes a closer look at revenue earmarks, mandatory spending floors, and indexation mechanisms. Specifically, the organization suggests indexing social benefits to inflation instead of the minimum wage. Brazil’s President, Luiz Inacio Lula da Silva, has advocated for raising the minimum wage above inflation to enhance families’ disposable income. However, this leads to increased mandatory government spending as several federal expenses are tied to the minimum wage. Under the new fiscal rules implemented this year, the government has the ability to increase spending above inflation. However, there are limits on real spending growth, resulting in mandatory expenditures outpacing other budget allocations. As a result, the government’s flexibility in implementing policies is severely limited. Finance Minister Fernando Haddad announced plans to propose new rules for the growth of mandatory expenses by year-end, but no action has been taken yet.
Dismantling Trade Barriers
The OECD’s report also evaluates Brazil’s trade openness, highlighting the country’s lag behind other emerging economies. Although recent progress has been made, Brazil still faces relatively high non-tariff barriers, including widespread local content requirements. These barriers hinder trade and can limit Brazil’s global economic integration.
In conclusion, the OECD’s Economic Survey of Brazil recommends that Brazil revisits its mandatory expenditures and dismantles trade barriers to enhance its economic growth potential. By ensuring greater flexibility in the federal budget and promoting trade openness, Brazil can unlock new opportunities for its economy.