Cuts in the Bolsa Família Program and the Escalation of Extreme Poverty in Brazil

51/5000 Poverty, Inequality, Bolsa Família, Research, FGV

Between 2014 and 2018, the income of the poorest 5% in Brazil fell by 39%. Consequently, the number of people under the extreme poverty line increased by 71.8% in this period – adding 3.4 million people in this group. This rise in extreme poverty occurred due to a harsh economic recession and cuts in the Bolsa Família Program (BFP or Family Grant). In the latter's case, first because of a reduction in the value of the benefit in real terms since it was not corrected according to the inflation in 2015 (a year in which inflation reached 10%) and somewhat in 2017 (when inflation was already under control). Second, because of a cutback in the number of beneficiaries. It is estimated that at least 900,000 families were removed from the BFP in 2019, thus creating an annual line of 500,000 families who should be covered by the program but are still waiting for a chance to receive its benefits. Other estimates suggest that at least one million families were waiting to enter in the BFP in 2019.

Therefore, the main Brazilian policy tool to fight poverty diminished during the economic crisis initiated at the end of 2014, which led to a loss of well-being and to an increase in the number of Brazilians facing extreme social vulnerability.

The Bolsa Família Program is a conditional cash transfer to alleviate poverty that covers one-fifth of the Brazilian population (around 40 million people). Targeted on the poorest families and children who live below the lines of poverty and extreme poverty stipulated by the government, the benefit is withdrawn by the mothers and/or women in the family (90% of the cases) using a magnetic card. The eligibility threshold for the basic benefit, today fixed at R$89 per person, is similar to the lowest poverty line appointed by the Millennium Goals (US$ 1.25 per day adjusted by parity purchasing power – which was used as inspiration during the implementation of the Bolsa Família in 2003). The program’s cost is only 0.4% of the GDP, a tiny value if compared to the BFP’s impacts on the life of the poorest Brazilians and on the Brazilian economy as a whole. For example, for each R$1 spent on the program, R$1.78 is generated in the Brazilian economy. This implies that each real spent on the BFP impacts three times more the GDP than social security benefits and 50% more than the BPC - another Brazilian cash transfer policy focused on the poor.

In order to estimate the impacts of the BFP, such as assessing how it directly affects poverty or even the size of the program, first you have to solve a complex puzzle. In the last 5 years, there were changes on household surveys (mainly due to the substitution of PNAD by PNADC), in addition to changes on how the government make available the official data related to the program - given the transformation of the Ministry of Social Development into the Ministry of Citizenship. The household surveys are of fundamental importance to assess many dimensions of the program, to connect them and to compare the results with the data obtained through administrative registries of the program.

According to our estimates using PNADC microdata – which discloses information about the BFP since 2016, the program is the best targeted on the poor among all official public cash transfers in the country. The BFP’s Concentration Index* was eight times better targeted on the poor than the BPC, another official cash transfer focused on disabled people and poor elderly. Moreover, the Concentration Index grew 3.76% between 2016 and 2018 for the Bolsa Família. On the one hand, this could be an outcome of the fraud screening process implemented in the program. On the other hand, the number of beneficiaries fell by 2.51% and the program’s share in total income fell by 10.37% in the same period, representing a diminishing in the size of the program, either due to a reduction in the number of people covered by the BFP or due to a shrink in the mean benefit in real terms. Among those who receive the benefit, its mean value diminished 4.4% between 2016 and 2018. When considering the total population, the benefit reduction reached 6.75% in the same period.

When using the traditional PNAD, our estimates reveal that between 2014 and 2015, a period in which the economic recession walked hand-in-hand with accelerating inflation, the income from the BFP fell, in average, 13.61% for the total population, and 12.44% for the poorest 5% Brazilians. This reduction in the income from the Family Grant for the most vulnerable Brazilians contributed to almost half of their loss in per capita household income – a fall of 14.22%.

Finally, after assessing data from the program’s payroll, we estimate that after marked real per capita gains between 2011 and 2014 (20.82%), the real value of its benefit per Brazilian decreased by 13.39% between December 2014 and December 2019. The annual variation of the purchasing power was -14.19% in 2015, 0.76% in 2016; -1.87% in 2017; 2.53% in 2018 and -0.44% in 2019. This sequence of losses in odd years, which correspond to post-electoral periods, suggest that the program kept being used in accordance with the electoral calendar. It is worth noting that our estimate for 2019 takes into account the additional benefit offered by the government only for December 2019 diluted throughout the year. However, in reality, this extra benefit paid to families doubled the payroll only for December, not affecting the other months of the year. Moreover, the government is not planning to offer this same benefit in the years to come. If we only consider the benefit in December's payroll, the real gains in that month would reach 83.8%, while the other 11 months would register losses of approximately 8.1%. But the concentration of the extra benefit in a single month negatively affects poverty. We believe that a better solution would be to dilute this benefit throughout the year, offering an equal increase to every month of the year, simulating a simple adjustment in the benefit's value.

Following this hypothesis of an evenly distributed extra benefit, the loss in per capita expenditure of the program in 2019 would reach 0.44%. Nevertheless, the impacts on poverty would be smaller since the extra benefit would affect the family's budget in a more balanced manner throughout the year, and not exclusively focused on one month (especially December, a month filled with extraordinary expenses, such as temporary jobs related to Christmas, the bonus wage for formal employees in Brazil and extra social security benefits). This hypothesis of an extra benefit for Christmas and not a single penny for the rest of the year would negatively affect poverty. In addition, the extra benefit in December does not have an impact on the eligibility criterion of the program, thus reducing its impacts on poverty vis-à-vis an increase in the basic benefit of the program - which affects both the benefit level and the number of beneficiaries by increasing the extreme poverty line.

According to Marcelo Neri, Director of the FGV Social, the imbalances in the Bolsa Família Program in the last 5 years resulted in a fiscal adjustment package over the shoulders of the poorest Brazilians that almost did not contribute to solving the fiscal fragility of the country. As an outcome of the cuts in the BFP, the most vulnerable people were exposed during a period of a harsh economic recession. Furthermore, these cuts made the economy’s recovery process even more sluggish because less income in the hands of the poor implies less consumption in the country as a whole, once the poorest consume a larger proportion of their family budget. Consequently, the ‘wheels’ of the economy kept turning around in a slow pace given the cuts in the Bolsa Família Program.

* An indicator that reveals how well targeted is the program. When it covers the poorest citizens, its value goes to -1. When it covers the richest citizens, its value reaches 1. In 2018, the Concentration Index for the Bolsa Família was -0.6408; for the BPC -0.079; for other social programs 0.0727; for social security 0.5489 and for all incomes combined 0.5451.



 CGTN América - The Heat: Brazil’s Bolsa Familia

Part 1

Part 2  (Interview - Marcelo Neri) 

-  "Brazil 'Bolsa Familia' cut, millions struggle to survive"

-  Interview - Marcelo Neri (FGV Social)

 The Economist (Fevereiro/2020) - Bolsa Família, Brazil’s admired anti-poverty programme, is flailing



-  Director of FGV Social analyzes the Extra Benefit paid in December for the beneficiares of Bolsa Familia
-  Assessing PNADC / Inequality
 FGV Social discusses the last UNDP report 



 Book - "Bolsa Família Program - a decade of social inclusion in Brazil"
Seminar "Overcoming Poverty, Inclusive Growth and the New Social Agenda"
 Article - RAP / "A next generation of conditional cash transfer programs
 Article - RAP / "Bolsa Família, time spent in school and students’ motivations"
 Research "The Escalation of Inequality – What was the impact of the crisis on income distribution and poverty?"
 Interview - Folha de S. Paulo - Global inequality: "Without the required focus, Brazil may take 15 years to return to the poverty levels of 2014"