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Economy

A vote that can change Brazil

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This article was originally written in Portuguese. To read the original version, click here.

Brazil’s 513 congresspeople and 81 senators will decide in the next few weeks on a theme that is important to the lives of millions of Brazilians and to the country’s economy. After many comings and goings, the National Congress will finally vote on a proposal for the Social Pension Reform.

Conceived by the liberal government of Jair Bolsonaro (PSL), who took office this January, the reform is sold as the only way to improve the country’s public accounts, reducing expenses and making extra money for investments. However, as it always happens in democracies, there are divergences: the opposition says that the government is merely making a fiscal adjustment that will harm the poorest workers.

The Brazilian social security numbers are huge, like everything concerning this country. In 2017, the general scheme, which pays pensions and retirement funds to workers in the private sector, had BRL 555 billion in expenses. A considerable part of that (BRL 120 billion) is targeted to farm workers, who generally have a lower income.

Another tremendous amount of money, BRL 333 billion, was destined on the same year to the retirement and pension funds from public employees, including civilians and military workers. Adding also the Continuous Provision Benefit (BPC), a form of social assistance paid to people who don’t have a minimum income to survive, the total is BRL 934 billion, or 14.4% of Brazil’s Gross Domestic Product (GDP).

The figure that the government and many economists use to defend the reform, however, is none of these. It is the difference between what Social Security collects and what it pays. Depending on the calculation, this deficit reached BRL 290 billion in 2018. In a country lacking investment in infrastructure and with 12 million unemployed people, this number gets anyone’s attention.

New rules

The reform proposed by the government is not small. The first rule changed is the one establishing a minimum age for retirement. Currently, there are two different possibilities for obtaining the benefit: getting to a minimum age or paying the pension plan for a period of 30 years (women) and 35 years (men).

The Bolsonaro government wants to end the type of retirement per time of contribution, requiring all workers to reach 62 years (women) and 65 years (men) of age to be able to apply for retirement. The argument is that Brazil is aging and soon it will not be possible to cover the pension gap, unless the current generation makes sacrifices. In other words, by living longer after retiring, people would be putting pressure on public accounts.

The time of contribution to be paid full retirement would be 40 years. After 20 years of contribution, it is possible apply for retirement, but with a 40% reduction. Those who exceed 40 years of work can reach 110% of the value of their earnings when retiring.

Another important point of the reform is a new rule for BPC, paid to elderly people in extreme poverty. Currently, the beneficiary starts receiving BRL 998 at 65 years old. By the government’s proposal, the minimum age would decrease to 60 years, but the minimum sum to be paid would be reduced to BRL 400, reaching the current value only after ten years.

The main architect of the reform, the Economy minister Paulo Guedes, a liberal graduated from the University of Chicago, says that there is margin to negotiate any of the points from the proposal. The important thing, from his and the government’s point of view, is that the value to be saved by the government with the reform, expected to be just over BRL 1 trillion in 10 years, is maintained.

Far from consensus

The reform, however, is far from being a consensus, both in society and in the Congress. Although Bolsonaro is at the beginning of his term in office and has a considerable slice of the Parliament on his base, the changes are unpopular because they affect an immense number of voters, which makes politicians think twice before voting.

One of the problems that hinder the adoption is the perception that not all people are affected the same way. Coming from the army, the president, a retired captain, assured to the military much milder rules than for civilians, for example.

The military reform, presented nearly one month after the project that affects civilians, would save BRL 97 billion over ten years, contributing with almost 10% of what the government intends to cut in the period. However, as a compensation to his own category, the president granted, in the same project, a career restructuring plan that consumes a considerable part of this sum: BRL 86 billion.

Another argument is that companies that are in major debt with Social Security are not being charged with the same effort dedicated to workers. It is currently estimated that business owners owe nearly BRL 450 billion to the system – a sum that would cover the gap for only a year and a half, in the most drastic calculations, but that certainly makes a difference in the national accounting.

Difficulties and expectation

With all this, the leftist opposition says that reform is not fair. President of the Workers’ Party (PT), which ruled the country over three terms, congresswoman Gleisi Hoffmann says that reform is the “end of social security” in Brazil and that, in fact, it would be just a way for the government to save at the workers’ expense.

The federal government also has had trouble with its coordination in the Congress. Not very familiar with negotiations, Bolsonaro clashed with the president of the House of Representatives, Rodrigo Maia (DEM-RJ), supposedly his ally, in public barb exchanges. The congressman even threatened to leave the coordination for the reform, which could cause serious problems for the government.

Since it requires a change in the Constitution, the Pension reform needs approval from three-fifths of each of the Congress Houses. This means the need of 308 votes in the House of Representatives and 49 in the Senate. Before getting voted, however, the text goes to a commission that judges the legality of the proposal and a commission with the purpose of examining the merit of each point discussed.

From the point of view of supporters of the reform, although they represent some extra weight for each worker, the changes will be beneficial to the country by ensuring a less cumbersome government, which will collect less taxes and be able to invest in infrastructure for economic growth – the cycle of stagnation and small GDP growth in recent years could have an end this way.

The financial market is clearly and anxiously waiting for the approval of the proposal. In the last few days, the mood of the São Paulo Stock Exchange (Bovespa) has clearly changed according to news that appear to favor or hinder the progress of the reform.

According to the president of CCJ, the first commission to evaluate the proposal, the project should start being processed in early April. There is no deadline for the process to finish.

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