I’m in Brazil for a speech to the Fórum da Liberdade, where I’ll be speaking on “The Future of the Global Order” and explaining the difference between good globalization and bad globalism.
Given the topic dominating the news, I’ll obviously be condemning Trump’s economically illiterate trade policy.
But I’m also going to mention a very important fiscal problem in Brazil, and that’s the focus of today’s column.
Expanding on what I wrote earlier this year, here’s a chart showing how government spending is becoming a much bigger problem.
Given the rapid and worrisome increase in the burden of government spending, Brazil obviously is not complying with fiscal policy’s Golden Rule.
What makes this especially disappointing is that Brazil briefly had a spending cap, but politicians quickly escaped that constraint.
But that’s just part of the problem. IMF data confirms that Brazil also has the biggest fiscal burden of government in all of Latin America.
At the risk of understatement, this is hardly a recipe for future prosperity (notwithstanding what Hillary Clinton once said).
Especially since one of its main competitors, Argentina, is now making dramatic moves to improve its fiscal situation.
I should point out, incidentally, that fiscal policy is not Brazil’s biggest problem. According to Economic Freedom of the World, the country’s worst policy area is red tape.
But I’m a fiscal policy wonk, so I’m going to keep the focus on the nation’s spending problem.
Which brings me to my third and final chart for today.
In the absence of pension reform, Brazil’s fiscal problems almost surely will get worse in the future.
Why? Because demographic trends from the World Bank show that there will be more and more old people and fewer and fewer young workers to support them.
This puts Brazil on a path toward even-bigger government, along with pressure for ever-higher taxes.
Perhaps Brazil should try to avoid this fate by sending a delegation to Santiago and learn about Chile’s pension reform.
But since a supposedly right-of-center government failed to follow my suggestion to do that in 2018, I have no hope that the country’s current leftist leadership will act any differently.
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Image credit: L.C.Nøttaasen | CC BY 2.0.
