USP: stagnation of social benefits may generate contraction in municipalities

Stagnation or cuts in the value of social and pension benefits could cause a severe contraction in economic activity in municipalities in Brazil's interior, according to a survey by the Research Center on Macroeconomics of Inequality (Made), of the School of Economics and Administration of the University of São Paulo (FEA-USP), released this week. According to the study, pensions, Bolsa Família, and the Continuous Benefit Payment (BPC) carry significant weight in the economies of these cities and can represent nearly half of the budget of the poorest families. "Since the money received by these families is used almost entirely to purchase basic necessities, the cash circulates immediately in the local commerce, secures jobs, and keeps municipal revenue active," highlights the co-director of Made-USP, economist Luiza Nassif. According to the survey, of Brazil's 5,569 municipalities, about 4,000 are outside metropolitan regions. In these cities, the study says, the weight of public transfers can be double that of large urban centers. In Ceará, for example, social and pension benefits account for 22% of the aggregate income of the state capital and its metropolitan region. In cities in the interior, that figure is 40%. Future impacts The Made/USP study projected the economic effects of the evolution of income from social and pension benefits in cities in the interior over the next three years. The study took as its baseline the years from 2022 to 2025, when there was real growth for the BPC and pensions, and compared that scenario with the context of adjustments used between 2019 and 2022, with no real gains in the minimum wage and a total freeze. The survey shows that, without the adjustments, the aggregate income of the country's interior would suffer a severe contraction, falling between 6.8% and 10.8% below the level with real appreciation of social and pension benefits. "This would generate a chain reaction in economic activity that would even affect families that do not depend on public assistance," Nassif assesses. The study shows that the most critical scenarios would occur in the interior of Rio Grande do Norte, Amapá, and Piauí, where total income would fall between 17% and 18% without the current pace of increase in social benefits. Amazonas, Sergipe, and Pernambuco would see losses of around 15%. Ceará, Maranhão, Alagoas, and Bahia would see declines between 10% and 13%, while Mato Grosso do Sul, Rio de Janeiro, Espírito Santo, São Paulo, Mato Grosso, Rio Grande do Sul, and Santa Catarina could suffer losses of up to 6.5%. Effects on poverty The survey highlights that, in addition to the effects on the income and economic activity of municipalities in the interior, the benefits play a decisive role in fighting poverty. "For those living on the edge, any adjustment below inflation pushes the family directly into poverty," Nassif states. According to her, for families with per capita income of up to 1.5 minimum wages, the benefits can reach 50% of income. Simulations conducted by the survey indicate that the absence of real gains in benefits between 2022 and 2025 would have pushed approximately 2.7 million people into poverty in municipalities outside metropolitan regions, 2.4 million of them into extreme poverty. In absolute numbers, the largest increases in poverty would occur in Bahia (up to 336 thousand more people), São Paulo (up to 263 thousand), and Minas Gerais (up to 251 thousand), followed by Maranhão, Pará, and Ceará (with more than 200 thousand people each). "Looking at the impact that the drop in income causes, it becomes clear the damage that a freeze on benefit growth can do to local economies," Nassif observes. "Maintaining the real appreciation of pensions, the BPC, and income transfer programs is the minimum guarantee of dignity for families and of survival for local commerce in Brazil's deep interior," she adds.