What now? The trade-offs and budget cuts needed to fix Brazil’s finances

As Brazil’s interim government gets to work, its main task is fixing Brazil’s finances after identifying a record budget deficit. Although the specter of austerity looms large, the good news is that budget cuts don’t need to affect Brazil’s social programs. The country’s real fiscal problems can be alleviated by addressing large-scale inefficient and wasteful spending elsewhere. The following five-part series examines where some of these savings could come from.

Briefly after taking office, the interim government of acting Brazilian president Michel Temer announced a record budget deficit of R$ 170 billion, almost double the figure estimated by his predecessor, Dilma Rousseff, who has been suspended pending an impeachment trial. The size of the hole in the budget is staggering, and reflects unsustainable spending by Rousseff’s administration. Now, as Brazil faces its worst economic downturn since the Great Depression, one of the main tasks of the interim government is to restore stability and confidence by getting the fiscal situation under control. This will inevitably require painful spending cuts.

There is no question that government spending in Brazil needs to be examined and changed. The current rate of public spending, accounting for 40% of GDP (double the rate of the United States), is clearly beyond the means of the government. This is unsustainable and has had serious consequences for the country, including the repeated downgrades in its credit ratings, which further increase the cost of borrowing, placing the government in an ever bigger hole.

Amid rampant speculation about where funding will be slashed, the following five-part series examines the trade-offs and decisions that the Brazilian government will have to make moving forward to stabilize the country’s financial situation, examining spending on social programs, subsidies to the wealthy, public employee benefits, and political fragmentation and corruption, as well as the opportunity cost of the misallocation of resources and the lessons learned from the successes and failures of the past decade.

Part I: Social Programs | Part II: Subsidies | Part III: Public Sector Spending | Part IV: Corruption | Part V: Lessons Learned

To view entire series as one article, click here.