Brazil’s Social Security sees Increasing Liquidity

CEIC Brazil Data Talk: Brazil’s social security fund saw an impressive operating cash flow balance of BRL9.99 billion during the financial year ended December 2012, corresponding to annual revenue of BRL396.68 billion or net revenue (i.e. revenue from internal activities less transfers and fees to third parties) of BRL275.76 billion less expenditures of BRL386.69. As of December 2012, its cash position stood at BRL22.31 billion, almost double its opening balance of BRL12.31 billion during January 20132012; previously, Brazil’s social security cash position declined from BRL11.58 billion at the end of 2004 to BRL2.07 billion in December 2007. The cash flow statistics also reveal increasing participation in Simples Nacional, a simplified taxation regime largely specific to small and micro-businesses, consolidating various taxes, ranging from corporate income tax (IRPJ) to the social contribution on net profits (CSLL), and social security payments into a single document, while providing some tax incentives. Other major revenue sources include federal transfers (amounting to BRL91.43 billion for 2012) especially from contributions to social security (COFINS), the Public Servants’ Social Contribution (PSS) and the Organic Law of Social Assistance (LOAS). However, low (and indeed, negative) financial revenues especially from remuneration for financial investments – amounting to a deficit of BRL1.20 billion during 2012 – has been a cause of concern. In terms of cash outflows, the rising operating balance has been attributed to lower growth in benefits payments; part of this is credited to Brazil’s success in reducing its high unemployment rate (which was above the 10% mark prior to the second half of 2005 and hovered around that level from 2006 to the first half of 2007), hence reducing the burden on the social security fund. In addition, improved efficiency has kept expenses down (indeed it reduced overall personal and administrative expenses during 2012). However, in terms of the Social Security’s general regime cash flow balance (i.e. the difference between net revenue and general regime benefits) for the year ended December 2012, the fund reports a deficit of, BRL 40.82 billion, in nominal terms. The deficit was 14.8% higher than the deficit of BRL 35.55 billion during the previous year and higher than the BRL 38.0 billion anticipated by the Ministry of Social Security. The ministry has attributed the above average deficit to lower-than-expected reimbursements on the payroll relief account, of which only BRL1.76 billion were repaid out of the BRL4.30 billion expected by the Ministry. Notwithstanding the shortfall, the Ministry of Social Security still hopes to receive the outstanding amount for 2012 in the coming months. Brazil still prides itself on one of the most comprehensive and dynamic social security systems in the region. The improving cash position of Brazil’s social funds is crucial given the importance of liquidity for social spending, especially in funding its immediate benefit concessions, especially during these uncertain times. Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. By Bruno Vasconcelos - CEIC Analyst Back to Blog
7th May 2013 Brazil’s Social Security sees Increasing Liquidity