Brazil cuts pension, jobless benefits to prop up finances
Thursday, 8 January 2015 02:03
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BRASILIA (Reuters): The Brazilian government said on Monday it will limit unemployment and pension benefits, in a move that aims to shore up depleted finances and regain investor confidence.
Incoming planning minister Nelson Barbosa said in a briefing that the measures would save the government up to 18 billion reais ($ 6.7 billion) a year or 0.3% of Brazil’s gross domestic product next year.
The measures, effective immediately via a presidential decree, could prove unpopular for President Dilma Rousseff, who vowed to maintain workers’ benefits during her successful re-election campaign for a second term that starts on Thursday.
A rapid deterioration of Brazil’s finances after years of heavy public spending and hefty tax cuts has put pressure, however, on Rousseff to introduce austerity measures to avoid losing its coveted investment credit grade. The measures include an increase in the time a worker needs to be employed before they can request jobless insurance and a reduction in the payment of widow’s pensions, as well as a number of restrictions to avoid fraud.
“There are many distortions in these programs. For them to be sustainable we need to make these changes,” Rousseff’s chief of staff, Aloizio Mercadante, told reporters in Brasilia.
Brazil has some of the world’s most generous unemployment and pension benefits, which analysts say represent a huge fiscal liability for a country that has more young workers than retirees. Brazil’s widow pension payments have doubled in the last seven years and amount to about 3.2% of GDP. Countries with a much older population such as France and Japan spend 1.5% and 1.2% on those pensions respectively.
The Rousseff administration has promised to deliver a primary budget surplus of 66 billion reais or about 1.2% of GDP next year. This year Brazil is at risk of posting its first primary deficit ever as revenues dwindle.
The primary surplus, or excess revenues before debt payments, helps gauge the country’s capacity to repay its debt.
