Brazil: Bolsonaro's ambitious social-security reform bill likely to get diluted in Congress
March 12, 2019
Taking aim at the government’s strained finances, newly-elected President Jair Bolsonaro presented Congress with a comprehensive social-security reform bill on 20 February. His plans set out to save more than BRL 1 trillion over the next 10 years—about BRL 300 billion more than former President Michel Temer’s failed reform package—while clawing back several public-pension benefits and introducing, among other provisions, a minimum retirement age. Financial markets reacted positively to Bolsonaro’s bold and ambitious proposals, highlighting that savings of this scale could help stabilize the public debt ratio.
Assessing the merits of the proposal, Gustavo Rangel, chief economist at ING, points out that, “the guiding principle of the reform is to delay retirement by introducing stricter criteria, including a minimum age of 62 for women and 65 for men, and higher minimum years of contribution into the system. Retirement rules for special regimes for teachers, police, rural workers, and the elderly poor would also become stricter.” The implied savings, meanwhile, would amount to “2.7% of GDP by 2027 (or BRL 1.1 trillion accumulated over 10 years)”, according to André Matcin, an analyst at Itaú BBA.
Passing any legislation, however, will prove difficult. As highlighted by William Jackson, chief economist at Capital Economics:
“The proposal only marks the starting point for negotiations in the legislature. Comments from the government suggest it is 60 to 70 seats short of the 308 votes needed in Congress to approve the reform.” Jackson added that “the Temer reform had an approval rating of just 20% or so.”
Brazil’s fragmented Congress means that the government’s plans will almost certainly be watered down. Still, analysts remain upbeat, as noted by Helcio Takeda, an analyst at Pezco Economics:
“We recognize that the original project will not be approved as it is. From the estimated saving of BRL 1.1 trillion in 10 years, we expect the approved reform to save around BRL 700 billion in 10 years. Although it is 36% lower than the original estimate, we think it is still a sizeable amount. At least, a reform that could [deliver] BRL 500 billion [in savings] in 10 years is welcome.”
All told, analysts agree that the bill presented to Congress is a step in the right direction. “It is undisputable that a pension and relief reform is needed”, wrote José Francisco, chief economist at Banco Fator.
Analysts, however, also agree that passing the legislation will be riddled with challenges and it will be subject to a lengthy approval process.
Brazil Public Debt Forecast
Consensus currently sees the public debt at 79.3% of GDP this year before rising steadily to 83.3% of GDP.