Economy

Brazilian Senate approves a higher value for FGTS withdrawal and impact in consumption should be greater

Brazilian senators have increase the FGTS immediate withdrawal from BR 500 to up to BRL 998

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  • To become law, the text must now be signed by the Brazilian President Jair Bolsonaro;
  • This immediate FGTS withdrawal is following a calendar that began in September and will end in March 2020.

The Brazilian Senate has approved a change in the provisional measure (MP 889/2019) that created new forms of withdrawal of the FGTS (the Portuguese acronym for “Guarantee Fund for Length of Service,” an obligatory social insurance fund which saves 8% of the worker’s earnings monthly to support them in case of specific eventualities, such as long-term sickness or the purchase of a new home).

Issued in July by the Brazilian Executive power, this MP allowed workers with accounts linked to the FGTS fund, an immediate withdrawal of up to BRL 500.

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Now, Brazilian senators have expanded this amount to BRL 998, provided that the employee has a balance equal to or greater than this amount in his FGTS account. To become law, the text must now be signed by the Brazilian President Jair Bolsonaro.

This immediate withdrawal is following a calendar that began in September and will end in March 2020. If the change is sanctioned by the President, workers who meet the minimum wage rule and have already withdrawn the BRL 500 may withdraw the remaining BRL 498.

No one at Planalto Palace can tell yet whether he will sanction the measure or not. Anyhow, the impact of the FGTS withdrawal should be greater than the one estimated by the economic consultancy LCA in August.

In the ocasion, LCA said that the immediate withdrawal alongside with the PIS/Pasep (a bonus salary released every year for those who earn up to two minimum wages) regular withdrawal could inject more than BRL 40 billion in the country’s economy during this year and the next.

That’s because part of the funds should go to repay debts, and part to consumption. This second use is the one which tends to generate more jobs, increase income, and so on, according to specialists.

Also according to LCA, if about 60% of the released resources are intended for consumption, the impulse for the Brazilian government could reach a 0.5 percentage point in GDP.

The Independent Tax Institution (IFI), an entity linked to the Senate, has estimated an even greater impact of FGTS withdrawals on Brazilian GDP: up to 0.85 percentage point.

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Understand FGTS Withdrawal Changes in Brazil

The FGTS is funded by contributions made by employers. The amount deposited in each FGTS account (one is created for each new employment contract) can only be withdrawn by workers in specific cases, like when they’re dismissed without cause or retire, among other scenarios. What the government of Jair Bolsonaro is doing is creating new cases where the withdrawal of this fund is allowed.

There is a second new feature introduced in the FGTS withdrawal by Bolsonaro’s team: from 2020, the worker will have the option called anniversary withdraw , which is the withdraw of part of the FGTS (from 5% to 50% from each account, depending on the amount available) every year.

However, if the employee chooses this form of withdrawal from the FGTS, he or she will lose the right to withdraw money from the fund in the event of dismissal and will have to wait a period of two years if he or she wishes to return to the old rules.