Congress debates Family Grant Program and poverty

The number of families covered by the program has been falling since May 2019, when it reached a peak of approximately 14.4 million. In net terms, around 1.1 million families left the program between May 2019 and January 2020, while an average of 500,000 families that are eligible to join the program have been waiting to do so every year.
Public Policy
12 March 2020
Congress debates Family Grant Program and poverty

Marcelo Neri, the director of FGV Social, recently gave a presentation to Congress, in Brasilia, after being invited to appear before the special committee that is analyzing a bill to reformulate the financial benefits offered by the Family Grant (“Bolsa Família”) Program (Bill 6,072 of 2019). The bill aims to ensure that the program’s resources and sums for people in poverty and extreme poverty are increased every year according to the annual inflation

Neri showed that between 2014 and 2018, the income of the poorest 5% of people in Brazil fell by 39%. Meanwhile, the number of people living in extreme poverty increased by 71.8%, or 3.4 million. This rise in extreme poverty occurred due to Brazil’s recession and real-terms cuts in the Family Grant Program. The latter happened because the benefits were not increased in line with inflation in 2015, when prices rose around 10%, causing half of the 14.22% decline in per capita household income experienced by the poorest 5% of Brazilians that year. The same thing happened in 2017, although inflation was lower that year. More recently, the number of beneficiaries has also fallen.

The Family Grant Program now covers one-fifth of the Brazilian population. The eligibility threshold for the basic benefit, today fixed at R$89 per person, is very close to the poverty line established in the United Nations Millennium Development Goals (US$1.25 per day adjusted for purchasing power parity), which inspired the adoption of the official poverty line and the Family Grant Program’s benefit criteria in 2011. The program only costs 0.4% of GDP. Out of all government income transfer programs in the country, it is the most well targeted on the poor and also generates the highest impacts on the macroeconomy. Each R$1 spent on the program boosts GDP three times as much as R$1 spent on social security benefits and 50% as much as the same amount spent on BPC – another government income transfer program focused on the poor.

The number of families covered by the program has been falling since May 2019, when it reached a peak of approximately 14.4 million. In net terms, around 1.1 million families left the program between May 2019 and January 2020, while an average of 500,000 families that are eligible to join the program have been waiting to do so every year.

According to Neri, changes to the Family Grant Program in the last five years have caused the poorest Brazilians to bear the brunt of a fiscal adjustment that has done very little to solve the government’s financial problems, while leaving the most vulnerable people exposed during a period of economic crisis. Last month, Neri published “2019 Social Assessment: Has Brazilian Inequality Peaked?” This study showed that in 2019, inequality of labor earnings reached its highest level in 10 years. Looking at the annual numbers, income inequality has been rising since 2015, but in 2019, its average growth was 0.17%, the lowest growth rate recorded in this period, thereby suggesting it may be stabilizing. In 2019, mean per capita income grew for the third year in a row, at a rate of 1.6%. The combination of rising mean income and the aforementioned halt in inequality growth led to a 1.32% increase in social welfare, the best performance since the beginning of the economic recession in late 2014.

“We are at a peak level of income concentration, according to the National Household Sampling Survey (PNADC). Continuing with the trend observed in the last quarter of 2019, it seems that a cyclical reduction in inequality is on the horizon,” Neri said. “The increase in income inequality has been losing steam. The result in the last quarter of 2019 represented the first numerical drop in inequality, although it was a small decrease. Per capita labor earnings are growing, not as fast as a year ago, but the combination of both factors is positive.”

To watch the presentation, click here.

 

Photo: Luis Macedo/Câmara dos Deputados