Public Tariffs and Subsidies

Within ethically defensible and sound principles, tax theory created a redistributive tax known as the "Income Tax" (IR). In Brazil, as with so many other things, it gradually became distorted and ended up serving merely as a revenue-raising instrument.

Older news reports pointed out that the largest individual income taxpayer in Brazil was Senor Abravanel (Sílvio Santos), who, by himself, as an individual taxpayer, paid (1998 figures) more than any of the automobile manufacturing plants operating in Brazil.

Perhaps for these reasons, the tariffs charged for so-called public services, which in theory were intended simply to reimburse the costs of providing those services and were once relatively easy to understand and administer, eventually became the object of complex and widely differing proposals, ranging from income redistribution through tariff structures with "cross-subsidies" to consumption "disincentives," "citizenship rights," and so on.

One need not go very far back in time—perhaps fifty years. All public services used to have declining unit tariffs as consumption increased. In rational schools of economics, the principle underlying this declining unit price structure was known as "economies of scale." Although it remains rationally valid, it has largely been ignored.

It is not entirely clear how this happened, but the subject deserves a master's thesis or even a doctoral dissertation. Let me offer a clue: during the Médici administration, with Delfim Neto serving as minister, around 1973, it was decided to manipulate inflation statistics by freezing public utility tariffs.

This "fool me because I like it" strategy worked until, with a considerable delay, it resurfaced in the form of the well-known 12% adjustment incorporated into inflation calculations some twenty years later, something many people will remember.

At first, the differences were modest and gradual, eventually leading to today's astonishing disparities. For example, the price per cubic meter of water supplied by CEDAE or SABESP varies by roughly tenfold between the lowest and the highest rate. The same applies to sewage charges. Electricity may not vary quite that much, but it is—or has been—similar.

Indeed, since the subject follows no logical principle other than administrative disorder, there are no governing laws (neither legal nor scientific); everyone simply does as they please. What exactly is the criterion for electricity, and what is it for water, gas, and other services? Why is the price per cubic meter charged to residential users different from that charged to commercial users, and why is the commercial rate different from the industrial one, whether the customer is a watchmaker or a garment workshop with minimal water consumption, or a restaurant, laundry, or beverage factory whose production depends heavily on water?

Why do two residents who use very little water in a luxury apartment end up paying ten times less per cubic meter than a large family of ten or fifteen people sharing the same water meter and necessarily consuming much more water? What is the logic behind this? There is none.

The situation is so absurd that, in order not to lose major industrial and commercial customers, utility concessionaires apparently negotiate secret side agreements with some of them. Why only some? Imagine the accounting liabilities being created, since those excluded will inevitably demand equal treatment.

Someone once said, "A lie repeated often enough eventually becomes accepted as truth." The result is that the initially timid justification of income redistribution through a social fund has become accepted as "truth."

Water, electricity, gas—in short—have no ideology. They should not be used as instruments of redistribution because they merely become a form of deception.

The redistributive instrument is the Income Tax, and we should strive to make it effective and efficient. Any other approach represents avoidance, ignorance / naivety, demagoguery, or some combination of the three.

A tariff exists to cover the costs of providing a service, including investments, operating costs, maintenance, research, improvements, reinvestments, margins, and risks. Nothing more. Those who consume more and those located closer to the water source contribute to the economic efficiency and viability of the system as a whole. They should pay a lower unit price, calculated rationally according to distance and the economies generated.

The social justice component would be better served by charging property speculators or homes that consume nothing based on their "installed demand" whenever water infrastructure is available in front of the property or when a house remains unoccupied. Genuine exceptions, which certainly exist and should not be ignored, could be addressed through a "water voucher" similar to the "Bolsa Família" program. Everything else is simply another case of "fool me because I like it."

Miguel Fernández y Fernández, engineer, chronicler, and columnist, member of the National Academy of Engineering and the Engineering Institute # written on 2018Nov23, 3,786 characters