Brazil Government Rules Out Changes to Pension Reform Plan

  • Compromise runs risk of undermining reform, Cabinet chief says
  • Temer’s top aide says investors have priced in plan’s approval

Brazil’s government has ruled out significant changes to its pension reform plan as the market has already priced in its approval in its current form, according to President Michel Temer’s top aide.

Expressing confidence that Congress would pass the government’s proposal in the first half of 2017, presidential chief of staff Eliseu Padilha said that there would be no negotiating over the plan’s key elements, including a minimum retirement age.

"The government cannot compromise without running the risk of undermining the reform," said Padilha in an interview Friday at his office in Brasilia, emphasizing that approval is fundamental to getting Latin America’s biggest economy back on track.

Pension reform is an essential part of Temer’s plans to restore Brazil’s battered public finances. The country spends over 8 percent of gross domestic product on pension benefits, a number that the Organization for Economic Cooperation and Development forecasts will grow to 16 percent by 2050 unless there are changes. At present, Brazil has no minimum retirement age and several different pension systems for the private sector, civil servants and the military.

The government’s proposal would establish a minimum retirement age of 65, requiring workers to contribute for 49 years to claim full pension benefits. Civil servants would be subject to the same rules as private sector workers. Military personnel are excluded from the reform plan, though Padilha said the government is working on a plan that would address the particularities of their profession.

Bloomberg Intelligence: Temer Targets Stable Pension Outlays After 2017

Last year, Congress approved a constitutional amendment to freeze public spending in inflation-adjusted terms for up to 20 years. Padilha acknowledged that pension reform faces greater opposition as it affects all Brazilians, but he said that the government has the support of over 80 percent of legislators. Changes to the pension system require the support of three-fifths of Congress and the Senate, with two rounds of voting in both chambers.

Among the aspects of the proposal that Padilha considers "absolutely non-negotiable" are the establishment of a minimum retirement age, setting the same pension regime for civil servants and private sector workers, and tightening the conditions for inheritors to receive the benefits of the deceased.
The cabinet chief also painted a positive picture of the government’s progress in restoring credibility in the nation’s finances. He said that he had no doubt that Brazil’s risk profile "fell, is falling and will fall even more" after the approval of pension reform. "We are close to investment grade levels," he said.

Padilha also ruled out tax rises, at least in the short-term. He said that Temer had committed to not increasing the tax burden since he took office and that the focus was entirely on cutting spending. If the economy did not return to growth, he said that "it might be necessary to think of something else," but that this was not on the horizon for 2017.

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