On 27 August 2019, Tasso Jereissati of the Brazilian Social Democracy Party (Partido da Social Democracia Brasileira: PSDB), who sponsored the pension reform in the Senate, presented the Upper House's own version of the bill. The Senate's bill retains the key features of the version passed by the Lower House on 7 August, namely setting the retirement age at 65 and increasing pension contributions.

A few modifications were made. On the expenditure side, the Senate proposed keeping current benefits for survivors' pensions and maintaining the payments of at least one minimum wage for low-income beneficiaries. On the revenue side, non-profit organisations and agricultural exporters would no longer be exempt from social security payments. According to Jereissati, the net savings to be generated by the reform would be about USD253 billion over the next 10 years, slightly higher than the USD239 billon estimated by the Lower House's version. Jereissati also indicated that the Senate would introduce a parallel bill to reform the pension system in states and municipalities, which are not included in the original bill. If approved, it would generate an additional USD89 billion of savings.

Significance

The bill is likely to be approved in late September or early October 2019, since obtaining the minimum required 49 votes out of 81 in the Senate (a two-thirds majority) is within the government's reach. This is because there is strong cross-party support for the bill and the opposition has a weaker presence in the Senate than in the Lower House, where the bill was already approved. Also, opposition lawmakers are not operating as a single group, which suggests that some would eventually support the government on this bill.

Implementation of the pension reform would help to tackle Brazil's unsustainable fiscal deficit (IHS Markit forecasts a fiscal deficit of 7.6% of GDP in 2019, with the pension systems deficit amounting to 3% of GDP in 2018), contain growing domestic public debt, and improve the operational environment. Indicators of the bill being delayed or derailed would be a falling out between President Jair Bolsonaro and the centre-right parties that have otherwise supported his austerity agenda. Similarly, an escalation of social and labour protests, which up to now have been modest, gathering millions or involving violence, would be likely to also delay discussions or implementation of the reform.

Posted 06 September 2019 by Carlos Caicedo, Senior Principal Analyst, Latin America Country Risk, S&P Global Market Intelligence