Brazil & Southern Cone - 12 August 2003

Lula drives through pension reform bill, damages coalition

President Lula da Silva's government has begun to make headway on the first of the two great reforms left undone by his predecessor, Fernando Henrique Cardoso. In the first week of August the chamber of deputies approved his plans for pension reform, the first of two passages through the lower chamber required of a constitutional change before it can go to the senate for its deliberations.

The bill irked leftwing members of Lula's own workers' party (PT) as well as legislators from its main ally in power, the centrist PMDB and other parties in his coalition. Indeed, the president was sufficiently worried by the obstacles it faced to postpone a key visit to South Africa and Portuguese-speaking Africa in order to take charge of negotiations with congressmen reluctant to vote with the government (see story on page 3).

The negotiations were arduous, and saw the government climbing down on two issues, which will reduce the R$50.7bn (US$16.9bn) it expected to economise on pensions 
between 2004 and 2023. Exactly how much the concessions will cost the government has yet to be calculated, though it could be significant. Still, the bill's initial approval was an important signal to the international community that Lula knows how to horsetrade to get his programme through the legislature.

On at least one of the concessions made by the government, it was facing an all-out revolt. This was the clause in the bill limiting the salary of judges appointed by individual states to 75% of the remuneration of a member of the supreme court; a subject covered in the bill because it impacts on overall government and states' pension spending. The constitution currently limits them to 90.25%, and there was a very real threat of a judges' strike in the days leading up to the vote in congress. A compromise solution was put forward, in which the new limit was 85.5%, but eventually the government was forced to capitulate, maintaining the original ceiling in order to avoid defeat on another key issue,
namely the introduction of taxation for retired civil servants.

The second concession was made in response to pressure from the Central Unica dos Trabalhadores (CUT). The trade union organisation has been one of the main sources of PT membership over the years, but it now allied with the controversial landless people's movement (MST) in organising protests against Lula's reforms. The concession fell into two parts, the first involving state sector pensions left by dead civil servants as a legacy to their family. The government had hoped to limit the monthly amount that could be paid to the relatives to R$1,058 (US$353), but pressure from CUT led to a revision of the plan, with the ceiling being raised to R$2,400 (US$800). The second part of the concession involved the ceiling above which state sector retiree's pensions will be taxable. Here, the government had been hoping to cap tax-free pensions at R$1,058, but CUT's lobbying resulted in the ceiling being raised to R$1,200 (US$400).

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