The Federal Government Pension Reform Act was presented at the National Congress last week, another step in the attempt to balance the public accounts and reduce the growth of the deficit of the current system, which is close to 300 billion reais (US$ 80 billion). If the changes will be approved, the economic team of the Bolsonaro government estimates an economy of one trillion reais (US$ 320 billion) in ten years.

In addition to the numerical effects of the proposal, the text has a significant impact on reducing the inequalities created by the current regime, considered extremely generous for a small group of privileged citizens.

Interviewed by the Instituto Millenium, the economists José Márcio Camargo and Zeina Latif highlight the crucial points of the project. The text has satisfied the experts, who consider the changes broad and complete, ensuring that all segments of society will be affected by the cuts.

Fight against privileges

Much publicized on social networks, the hypothesis according to which the reform increases poverty is contradicted by economists, unanimous in emphasizing the positive aspects that tend to reduce inequalities in the system.

Zeina Latif stresses that the reform tends to a convergence of rules between the public and private sectors. Under the current regime, some categories of civil servants have access to pension benefits at a younger age and with values ​​higher than those of the private system (INSS): “There is a step forward in giving equal treatment to people. The introduction of the minimum retirement age is important: today, those who retire with the minimum age criterion are just the poorest, whereas those who retire by contribution time are not actually among the most poor in society “, she explains.

Also the proportion in the increase in contributions, in both sectors (public and private), is mentioned by the two economists as a positive element of the reform. “The attack on privileges translates into two aspects: reducing expenses with some important groups and increasing the contribution of those with higher incomes to finance the Brazilian pension system, reducing the contribution of people with lower incomes,” adds José Márcio Camargo. According to the economist, last year the sum of the deficit caused by a million federal public pensioners was almost 80 billion reais. This means that, throughout 2018, the Brazilian society as a whole has transferred an average of R$ 80,000 to these beneficiaries. “That is, part of the taxes paid by the poor in the rural areas of the Piauí is destined for the retired public officials, who in some cases can receive up to R$ 30,000 a month”.

Capitalization

The proposal to transform the current system of simple distribution (“pay-as-you-go”, in which active workers finance those already retired) in a capitalization system (every Brazilian generates its savings) will be implemented in a second phase, through the approval of a complementary law. Zeina Latif believes that this is the right strategy for its approval. “I think the decision is right, that is, to approve the basis of the reform and leave the details to a later stage, when the debate will be more mature. Including many things at this time can make the negotiation in the Parliament difficult.”

Impact on States

José Márcio Camargo emphasizes that the project aims to make the system more stable. According to the economist, the idea is to save about R $ 100 billion a year, which represents, on average, one third of the social security deficit. In addition to the effects on the coffers of the Union, the relief will also be felt by the individual Brazilian states, some of which are immersed in serious fiscal difficulties. “All the rules will be immediately extended to the states and the municipalities and they will have an important impact, reducing the fiscal deficit of the various states and leaving them space to put in place adequate policies of public health, education and security”.

Benefits for the elderly

There have also been many criticisms on the changes in the care system for low-income seniors. Currently, people aged 65 and over are entitled to a minimum wage (note: today, about one thousand reais per month), even if they have not paid contributions to the INSS. The new proposal allows Brazilian citizens to anticipate five-year this benefit, receiving a monthly R$ 400 value and reaching the full minimum wage at the age of 70. “For many poor people in Brazil, R$ 400 represents a doubling of monthly family income, and I have no doubt it will be much better than having to wait another five years to get a salary,” says José Márcio Camargo.

“It is logical: If you guarantee a minimum wage in any situation, no one will ever want to pay pension contributions, which could create opportunistic behavior,” adds Zeina Latif.

Retirement of the military

The new rules for the military were not included in the bill and the government’s commitment is to send them to Parliament within 30 days. José Márcio Camargo considers that the type of work in this category requires different retirement rules, which should not open a door to advantages and privileges. “A 65-year-old military will hardly be able to participate in the Rio de Janeiro intervention, for example (note: it is a military police operation to reduce crime in the favelas of Rio de Janeiro). However, it is important to reform the system, today excessively benevolent”. According to the economist, the changes must revolve around the increase in the contribution time and the period of activity of each military.

The role of Parliament and society

The work of organized groups against the approval of the reform project, in particular those linked to the elite of public functionism, can be a concern, according to Zeina Latif. The question, however, does not exclude the individual responsibility of all Brazilians during this process. “When a person manifests himself in social networks by criticizing the reform, he helps to generate a wave of protest that puts pressure on the Parliament, each of us has his share of responsibility.” The behavior of the deputies will depend on the reaction of society. It is also a great job of persuasion, dialogue and government articulation.We do not know how this will happen, because it is the first important issue discussed by the new Parliament, so there is a lot of uncertainty. I am convinced that the pension reform will be approved , but we will have to see if it will be enough “.

José Márcio Camargo also believes in the approval of the reform and reinforces the fact that the fight against rumors is essential to provide right information to the population. “The most important thing is to show what a fake news is and how the project actually affects people’s lives. It will have a very positive impact, except for the privileged groups that receive extremely high pensions. I am optimistic and I think the reform will be approved quickly, with contents very similar to those sent by the government to Parliament “.

Why reform?

Even if he or she doesn’t follow the trend of public accounts every day, every brazilian feels the effects of fiscal imbalance on the quality of public services. On the brink of economic collapse, Zeina Latif emphasizes the fact that Brazil can not avoid this moment. However, in addition to the pension reform, it is necessary to think of other measures that can align the country’s growth to the rest of the world: “Brazil is close to a crash, which can be perceived by the fact that the state has no money at all. There are difficulties in paying the salaries of civil servants, there are no medicines in public hospitals and the maintenance of the infrastructure is not carried out. We are late in approving the pension reform.In addition, the country is aging rapidly: not just the number of children has decreased, but we are living longer, some rules are excessively generous, which exacerbates the situation, with an expenditure that only increases, and therefore increases public debt. It’s a matter of time before the inflation comes back and, with it, higher interest rates and lower economic growth “.

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José Márcio Camargo is a doctor in economics at the Massachusetts Institute of Technology, a professor at the Pontifícia Universidade Católica de Rio de Janeiro and an economist at Opus Gestão de Recursos.

Zeina Latif is a doctor of economics at the Universidade de São Paulo (USP) and chief economist at XP Investimentos. She worked at the Royal Bank of Scotland (RBS), ING, ABN-Amro Real and HSBC. She writes articles for the Agência Estado weekly.

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The Instituto Millenium (https://www.institutomillenium.org.br/) is a non-profit organization with no political or party ties, based in Rio de Janeiro. Comprised of intellectuals and businessmen, this “think tank” promotes values ​​and principles that guarantee a free society: individual freedom, property rights, market economy, representative democracy, the rule of law and institutional limits to government action.