Brazil unveils long-awaited pensions reform proposal

Brazil’s government unveiled its proposal for pensions reform on Wednesday, the biggest component of a plan to overhaul the country’s public finances and set the economy back on a path to growth.

Jair Bolsonaro, the rightwing president who took office on January 1, told legislators: “We count on your competence, your patriotism and your commitment to save Brazil economically. We have no other way out.”

Spending on pensions absorbs more than a third of federal tax receipts and is one of the biggest causes of a budget deficit, which is equal to about 7 per cent of gross domestic product. Passage of the reform will be closely watched by local and international investors, who are keen to see the government deliver on a promise to throw off the corporatist policies of the past and replace them with a wide-reaching programme of liberal market reform.

Alberto Ramos of Goldman Sachs described the proposal as robust, comprehensive and well designed.

Approval would be expected to deliver a positive shock to confidence and investment, as Brazil’s economy struggles to gain growth momentum after a crushing recession in 2015 and 2016.

The reform will need the backing of at least three-fifths of the lower house, or 308 of its 513 members, and the same proportion in the 81-seat senate, as it requires changes to Brazil’s constitution.

But in an early test of the government’s ability to muster congressional support more broadly, it suffered an overwhelming defeat in the house on Tuesday, when legislators rejected a move to make it easier for officials to withhold information from the public. Just 57 members, mostly from Mr Bolsonaro’s PSL party, voted with the government.

Mr Bolsonaro acknowledged that the pensions reform may see changes as it passes through congress.

The proposal is designed to save R$1.2tn in public spending over the next decade. Christopher Garman of Eurasia Group, a consultancy, said he expected it to be diluted by Congress and deliver savings of between R$400bn and R$600bn over that period. He gave a 30 per cent chance to the possibility of the reform being rejected outright.

Among other changes to the current system — under which many public sector workers can retire on full pay in their early 50s — the proposal sets a minimum retirement age for both public and private sector workers of 65 for men and 62 for women, to be phased in over 12 years.

Brazil’s new economy minister, Paulo Guedes, wanted to set the retirement age at 65 for men and women, but Mr Bolsonaro insisted that women should retire earlier.

The plan was presented at the end of a turbulent first week back at work for the president, who has been absent for surgery as part of his recovery from a stabbing attack on the campaign trail last September.

On Tuesday he fired a senior minister, Gustavo Bebianno, former president of the PSL, who was among his closest aides and one of the earliest backers of his presidential bid. The sacking followed a row between Mr Bebianno and Carlos Bolsonaro, the second of Jair Bolsonaro’s three sons.*

Last week, Carlos Bolsonaro accused Mr Bebianno of lying about conversations with his father concerning alleged misuse of campaign funds by the PSL, an accusation that the president endorsed on Twitter and in a television interview.

But audio from WhatsApp conversations leaked to news magazine Veja on Tuesday appeared to corroborate Mr Bebianno’s version of events.

“The congressional review will likely be long, noisy and bumpy,” said Mr Ramos of Goldman Sachs.

* This article has been amended to correctly identify Carlos Bolsonaro as the second of Jair Bolsonaro’s three sons