RIO DE JANEIRO, Brazil -- In the three years it took social security reform to make its way through Brazil's congress, the amendment was so weakened that the government now hopes to shore up the new law with additional legislation that will further cut payouts.
The social security amendment, passed by Congress in November and promulgated Dec. 15, linked eligibility to both age and years of contribution. In the past, only years worked counted.
The government is now hoping that a slightly larger ruling coalition will pass parts of the original amendment that did not make it into law.
An age eligibility requirement clause for private-sector employees already in the system was voted out of the amendment in June in a major government defeat. So was a measure that limited benefits of retiring civil servants to up to 70% of their last salary, depending on their length of service (as opposed to up to 100% of their last salary, as is now the case). Had both voted-down clauses been part of the social security amendment, payouts could have been curbed by $4 billion to $5 billion in 1999.
As passed, the social security amendment curbs payouts by an expected $2.5 billion in 1999, $5 billion in 2000 and $7.3 billion in 2001. These cuts are crucial in curbing the current program's total deficit of $35 billion, which is 54% of the total public budget deficit of $65 million, or 7.2% of the GNP.
Nonetheless, the government will try to get the new Congress, which is sworn into office in February, to restore to the amendment the voted-out, age-eligibility requirement for private-sector employees already in the system. Doing so will, however, be difficult, as amending an amendment requires a 60% majority in both houses of Congress. The government also will try to reintroduce the limit on benefits of retiring civil servants. It will do so as part of proposed regulatory legislation that would be added to the amendment, which would require an easier-to-get absolute majority (over 50% of all members) in both houses.
"The government is going to have a much harder time getting 60% of congress to approve the voted-out age-eligibility requirement for private-sector employees already in the system than getting 50% of congress to approve the voted-down amendment measure, which limits benefits of retiring civil servants to up to 70% of their last salary," said David Fleischer, a Brasilia-based political scientist. "But the incoming Congress will give the government a slightly larger ruling coalition in that body than in the old Congress, a plus it is counting on to get both measures passed."
The government also will reintroduce into congress two defeated social security tax proposals.
President Fernando Henrique Cardoso justified the social security taxes/tax hikes, which would have been in effect for five years, because public-sector social security payouts have created a $15 billion shortfall.
One proposal would have increased, from 11% to 20%, the social security tax paid by higher-paid civil servants on the part of their earnings that exceeds $1,000 per month. The second proposal would have put an 11% tax on social security payouts to retired civil servants and a 20% tax on civil-servant-retiree payouts that exceeded $1,000 per month. These proposals would have saved the government a projected $2 billion in 1999 alone.
But many argue that it will be difficult for the government to get these two unpopular measures through Congress, especially the one taxing retiree social security payouts. That's because they were soundly defeated when the government needed only a simple majority to get them passed as a joint provisional measure, or MP, before the social security amendment was promulgated. Now that these two tax proposals will be introduced, not as MPs but as complementary legislation to an already-promulgated social security amendment, they will require an absolute majority for passage. Still, their passage is crucial if the government is to sizably cut payouts this year.
"Given the $2 billion savings in 1999 alone that these two civil servant social security tax measures would allow, they are the most important-to-pass pieces of legislation that the government will try to tack onto the social security amendment," said Jose Carlos de Faria, a Sao Paulo economist with ING Barings bank. "But in a Congress always sympathetic to the plight of civil servants, the government will have tough time getting any legislation through Congress that adversely affects them."