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28/02/2018 - 16:02hs

OECD: reform could save up 7.9% of GDP

The organization released a report on Brazil this Wednesday. It also recommends an increase in the amount of funds made available for income transfer programs.

Brasília – Improved efficiency in public spending could lead to fiscal savings of as much as 7.9% of Brazil’s Gross Domestic Product (GDP) per year. So says the Organisation for Economic Co-Operation and Development (OECD), which issued a report on Brazil’s economy this Wednesday (28) in Brasília.

The OECD estimates that it would take “a primary surplus of some 2% of GDP” to stabilize government debt in the medium term. It recommends a fiscal adjustment plan including permanent spending cuts, a gradual retirement age increase, and the pegging of Social Security benefits to consumer prices as opposed to the minimum wage.

Another advice is to allocate more funds for transfers to poor people – including Bolsa Família – as well as dissociating the minimum benefit from the minimum wage. The OECD notes that although Bolsa Família is a “highly effective program, it accounts for only 0.5% of GDP, out of a total of 15% of GDP allocated to social spending.”

When it comes to improving the business environment, the OECD suggests the unification of state and federal consumption taxes into one single wide-basis Value-Added Tax (VAT), with full refunds for taxes paid on industry input purchases and tax-free exports.

The OECD says there are too many barriers on international trade, rates must be slashed and national content requirements must decrease. It also says that further reforms, improved business environment and greater integration with the global economy could boost Brazil’s GDP by at least 20% over a 15-year timeframe.

The Paris-based OECD is an international organization comprising 35 countries. Its Board is considering Brazil’s bid to join, which it submitted in May 2017. It’s also looking into applications from Argentina, Bulgaria, Croatia, Peru and Romania.

*Translated by Gabriel Pomerancblum

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