Brazil’s hosting of the soccer World Cup and Olympic Games in the mid-2010s symbolized its arrival as a confident middle-class power. Rapid economic growth and large-scale social reform had lifted millions out of poverty and gradually reversed some of the country’s extreme income disparities. But, that progress has stalled over the past decade. This article provides updates on SDG 10 in Brazil, examining the country’s performance against a core UN target – tackling inequality.

Decade of Stagnation

When the Olympics came to Rio de Janeiro, Brazil’s Gini Index score, which measures income inequality, had been steadily falling for decades — from more than 60 in 1990 to around 52 in 2015 —  prompting experts to celebrate the country as a beacon for social progress.

But its Gini score actually increased in subsequent years, before returning to 52 again in 2023, the most recent year of available data. That’s almost double the SDG 10 goal, of 27.5, and represents a decade of stagnation.

‘World’s Most Socially Regressive Austerity’

The economic crisis that hit in 2014 largely explains that lack of progress, after a slump in prices for Brazilian commodities such as iron ore, a major corruption scandal at the national oil producer and a raft of fiscal and monetary policies that undermined confidence in the government’s ability to manage the country’s finances.

Increased borrowing costs followed, along with legislation freezing social spending for 20 years, which one UN official described as the “most socially regressive austerity package in the world.” Millions slipped back into poverty in the aftermath of the pandemic and there has been a surge in homelessness across major cities.

Highly Regressive Tax System

Brazil’s regressive tax system is another major cause of inequality. Several millions live in poverty, but there is also more than 400,000 millionaires (in U.S. dollar terms), with the richest 1% of Brazilians earning 27% of the nation’s income.

The country’s income concentration is significantly higher than previously thought, according to a recent report by a group of Brazilian and international economists, with ultra-wealthy individuals paying relatively little tax compared to other nations.

Using a new method of calculating wealth, officials from the Brazilian tax agency and researchers from the EU Tax Observatory found those earning at least $1 million per year have far lower effective tax rates (20.6% on average) than the average citizen (42.5%).

Many other countries reverse this pattern, including the U.S., where the effective tax for million-dollar earners is 36%, compared to 29% for the average American.

Brazil’s tax system is therefore highly regressive, as the tax burden for middle-class households is significantly higher than for the very rich, which hampers efforts to reduce inequality.

New Leadership and Legislation Brings Some Relief

Luiz Inácio Lula da Silva’s return to the presidency in 2023, replacing the right-wing Jair Bolsonaro, has provided greater hope and funding support to social programs, including the flagship Bolsa Família program, which offers direct cash transfers to low-income families. Lula’s government has also passed legislation reducing the tax burden on low and middle-income households, with a minimum rate established for higher earners. In particular, the new laws ensured new levies on dividends and company profits that were previously exempt.

Observers debate the extent to which this can be celebrated, however, as some warn the highest earners are able to shield their income due to flaws in the legislation, while the changes are only expected to produce modest improvements to the Gini coefficient, of just 0.3%.

Tathiane Piscitelli, a professor of financial law at the Rio-based think tank, Fundação Getulio Vargas, has acknowledged the limited impact of the changes, but said: “It is an improvement to our system, something that has been needed for a long time… Income tax is supposed to be progressive. We had the opposite situation, where those who earned more paid less. So even if this is not the ideal reform, overall it is a major relief.”

Updates on SDG 10 in Brazil

Ultimately, tax reforms can only go so far, and Brazil will need to find ways to strengthen its economic performance to place itself in a fiscal position to dramatically increase social spending. With the government’s debt levels standing at more than 80% of GDP, up from 58% in 2016, and spending is still severely constrained, Brazil is unlikely to achieve the SDG 10 target in anything but the very long term.

Oxfam estimates it would take more than 75 years to match the income inequality levels of the United Kingdom, at the current rate of progress, which would still fall short of the targeted Gini index score of 27.5.

Reasons for Optimism

There are reasons for optimism, however, with analysts at Boston Consulting Group suggesting Brazil’s economy is “impressively resilient” and well placed to navigate the shift in global power structures. Political neutrality on the world stage helps Brazil continue to enjoy warm relations with most Western countries, while its membership of the BRICS+ group of nations provides a key leadership role among the world’s fastest growing economies.

The huge domestic market and vast natural resources should also help shield Brazil from sharp trade barrier changes, said BCG, while a vast clean energy sector and robust digital infrastructure provide solid foundations for sustainable economic growth. If growth can return and the government can respond with increased social spending and continuing improvements to the tax system, inequalities should again start to fall.

International and Non-Government Support

Brazil’s international connections should also bring foreign and non-governmental investment. Last year, for example, the World Bank agreed to fund a major project to re-introduce the Bolsa Verde Program, which offers cash assistance to rural families that commit to environmental conservation, and should benefit 55,000 families in the Amazon by December 2026. Meanwhile, organizations such as the Lemann Foundation are working to draw attention to Brazil’s challenges within influential academic circles, with major investments to establish research centers within some of the world’s leading universities.

Momentum Can Return

The fight to achieve SDG 10 in Brazil may have stalled after earlier gains, but recent policy reforms and global shifts that should favor its economy suggest momentum can return. If growth strengthens and reforms continue, Brazil should again make significant progress in narrowing its deep inequalities.

– Lawrence Dunhill

Lawrence is based in Bristol, UK and focuses on Politics for The Borgen Project.

Photo: Unsplash