Pension reform
A reform to the country’s unsustainable pensions system was quickly adopted as the Bolsonaro government’s flagship economic policy. The process was slow, but ultimately successful. On 10 July, almost five months after Bolsonaro had personally presented the project (a constitutional amendment known as the PEC 6/19) to congress, the pension reform was approved with 379 votes to 131 in the chamber of deputies, garnering the necessary three-fifths support in this momentous first vote. After a second vote in the chamber and two votes in the senate, the approved PEC was promulgated in early November, marking the start of the overhaul of the Brazilian pension system.
The approval of the pension reform stands out as the Bolsonaro government’s biggest achievement this year. With the government’s social security deficit amounting to R$195.2bn (2.9% of GDP) in 2018, and an ageing population, the pension reform had become an urgent necessity, but it remained a politically costly and unpopular move. The final reform plans for savings of R$800bn (US$196bn) over the next decade. This is less than the R$1tn anticipated in Guedes’ initial proposal, but double the R$400bn savings that a reform which Temer failed to pass had budgeted.
Guedes’ proposal to switch to a capitalisation system was removed, as was a reform to state and municipal workers’ pensions. A separate constitutional amendment has already been tabled for the latter and will be discussed by congress this year. Certain benefits, scrapped under Guedes’ proposal, were reinstated by congress. However, the approved reform introduces a minimum general retirement age (62 for women, 65 for men) as well as increasing minimum paying-in periods.
A reform to military pensions, a thorny issue considering Bolsonaro’s military background and support base, was treated separately and approved in early December. It increases minimum service time by five years and plans for a gradual increase in the rate of pension contribution.
More Brazil, less Brasília
Buoyed by the approval of the pension reform, Guedes presented a package of three constitutional reforms to congress in November, part of a plan dubbed ‘more Brazil, less Brasília’ – a name which summarises his objective of slimming down and decentralising the Brazilian state.
These three reforms are the federal pact PEC, the emergency PEC, and the public funds PEC. They broadly aim to decentralise budget decisions and overhaul spending rules for municipalities, states, and the federal state; oblige states and municipalities to abide by a spending cap; and allow for the suppression of the government’s public funds (funds drawn from certain royalties and destined to specific sectors such as healthcare or education) to re-allocate these resources to easing public debt.
The package aims to create a “culture of fiscal responsibility,” Guedes declared back in November. It has been well received by economists and certain lawmakers, but it will face opposition on some points, notably the proposal in the federal pact PEC to extinguish some 1,250 smaller municipalities. Although there are hopes that the reforms will pass congress in the first half of 2020, the political reality may prove more complex – and the ‘plano mais Brasil’ will be jostling with other reforms for the attention of lawmakers this year.
In the pipeline: administrative and tax reforms
Two other structural reforms expected from Bolsonaro’s economic team were an administrative reform and a tax reform. Talk of launching these before the end of his first year in office proved too ambitious, however.
The public administration reform, which would restructure the organisation of public sector careers and cut back benefits to public servants, was held back amid concerns that it would trigger popular protests. The explosion of social unrest across the region in late 2019, notably in Chile, a country which Guedes has frequently held up as a model to follow, sparked fears of contagion in Brazil’s government circles. This appears to have temporarily put the brakes on some of Guedes’ more neoliberal and potentially contentious proposals.
As for plans to simplify Brazil’s hyper-complex tax system, the government has so far failed to put forward a clear proposal. Different tax reform projects are already under discussion in congress, but the government has indicated that it will come up with its own. There has been talk of merging various federal taxes; of re-introducing a financial transactions tax modelled on the extinct and hugely unpopular CPMF (this has been point of conflict in government); and of making adjustments to taxes on profits and dividends as well as diminishing corporate taxes. Bolsonaro has assured that the burden on taxpayers will not increase, and that any new levies will be counterbalanced by the suppression of other taxes.
Guedes himself admitted to congress in late December that he is concerned by the lack of advance and consensus on the government’s tax reform efforts. Maia believes that a tax reform will be harder to pass than the pension reform was. There is now talk of the reform being presented piecemeal, in four different stages, and most projections point to it not being implemented before 2021 at the earliest.
