Administrative reform will reduce government’s primary deficit, experts say

With the process stopped in Congress since September, when it was approved by a special committee of the Chamber of Deputies, the administrative reform is one of the matters most awaited by economists and investors.

Although the text sent in September last year by the government has already been changed — especially with regard to cutting short-term costs —, specialists heard by the CNN Brasil Business they still believe that the agenda is essential for the country to escape the lack of fiscal control caused by the lack of space in the budget.

The combination of cutting benefits with a reduction in the salary range for the beginning of a career would be the main measures in the current proposal that would help to reduce the government’s primary deficit.

The administrative reform aims to reduce the second largest expense that the federal government currently has in its mandatory expenditures: the civil service.

The country has seven years of annual primary deficits and the situation was aggravated during the pandemic, with the need for financial rescue of the most vulnerable population. In this scenario of increasing State indebtedness, the situation of public accounts becomes increasingly urgent.

Spending on public servants

According to data released by the federal government, in 2019, 94.9% of the amount collected was earmarked for mandatory expenses, with the second largest expense being public servants’ payroll, after spending on social security.

2016 data from the Institute for Applied Economic Research (Ipea) point out that Brazil has about 11.5 million civil servants in the three powers and the three spheres. Payroll expense is equivalent to 13.4% of the Gross Domestic Product (START).

THE Ministry of Economy states that the average of the Organization for Economic Cooperation and Development countries (OECD) is 9.9% of GDP. However, the number of civil servants in Brazil in relation to the total workforce is smaller, 12.5%, compared to 21% in the OECD.

In 2019, adding the three Powers and the three spheres, spending on civil servants reached R$ 969 billion.

For Juliana Damasceno, a researcher at Ibre-FGV, the current budget is “stuck”, the result of a “lack of planning and fiscal responsibility”.

She claims that there is a lack of processes to assess the impact of these expenses, even to review them, or a good monitoring of goals for the results of these expenses.

As the expense is built on top of the mandatory total, the expenses are “out of control”. In general, when the collection exceeds the expenses, there is a surplus, which is usually used to pay interest on government debt. When there is a deficit, the government is left without these resources, and it may not be able to pay these debts, the self gives a negative perspective to international investors.

In the case of civil servants, she states that “the bad practice of not evaluating adds to pressure from one of the most expressive, organized and largest professional categories in Brazil, civil servants, who have their interests and are opposed to revisions . Not all of them, but there is an elite that wants to keep their rights and doesn’t want to give it up, it’s an expressive group”.

She assesses that there are today “distortions that are costly”, considering the differences between the private and public sectors in terms of remuneration for the same functions, in addition to differences between spheres.

A 2018 study of the world Bank points out that the wage distortion between sectors is greater at the federal level and less at the municipal level. Another problem is the creation of specific areas of activity that receive salaries higher than the average in the private sector and more benefits, while others receive lower salaries.

“Distortions are costly. In a tight fiscal situation, it makes sense to try to cut where you don’t need to spend. Get out of deficit. With a tight budget, what do you need to spend better on, do these distortions and excess benefits make sense?”, asks Damasceno.

Luciano Nakabashi, a professor at FEA-RP-USP, says that there are “distortions in the issue of civil servants in general. It is necessary to align the incentives a little, thinking about generating greater efficiency and greater justice in terms of benefits”.

He also points out a divergence between the Powers. “If you enter the federal career that is currently standard, you don’t have several benefits, but in other branches, mainly the Judiciary, you still have several. It is necessary to make this more egalitarian”.

The professor says that it is necessary to realign the current incentives for servers, in order to increase production, and reduce bureaucracy, improving the work environment. At the same time, he says that most of the spending is still on pensions, which swells the payroll, and needs to be reviewed again at some point.

According to Gil Castello Branco, secretary general of Associação Contas Abertas, the scenario requires a “fair administrative reform, which should reduce existing privileges not only in the Executive, but also in the Legislative and Judiciary, starting with super salaries.”

Strong points

For Castello Branco, a positive point of the proposal approved by the special committee of the Chamber is that it it will only apply to new servers. As much as this reduces the economic effects, avoids legalizations, and preserves acquired rights.

Castello Branco also sees the reduction of starting salaries in careers as positive, in order to make them more compatible with the market, and the lengthening of the time between the beginning and the end of careers.

Damasceno says that the benefits expected to be ended, such as vacations of more than 30 days and pay increases with retroactive effect, should have a “big budget impact. And it gives more equality to the functions, but it would need to be applied to the Judiciary as well”.

For specialists, the combination of cutting benefits with a reduction in the salary range for the beginning of a career would be the main measures in the current proposal that would help reduce the government’s primary deficit.

She says that the measure of establishing temporary contracts with a limit of 10 years is positive, as a way to encourage hiring. At the same time, the possibility of reducing working hours and wages in times of crisis helps to “accommodate shocks”, such as the last one with the pandemic, respecting the spending ceiling.

The measure of implementing evaluation methods for employees, which would be carried out by the population and may result in the employee’s dismissal, is seen as positive by Nakabashi, but in part.

“You have to be careful in how this assessment is carried out, it’s subjective, you have to think about how it would be in practice. The ideal is to have objective measurements thinking about what you had to do, what you did and the result. Have metrics”, he says.

According to him, “any employee needs to be evaluated, even to dismiss or benefit him”.

The professor considers that the key point of the reform, an alignment between incentives for employees to be rewarded for their performance or punished – and even dismissed – is still addressed in a timid way, but it can help to increase efficiency and productivity.

judiciary

A consensus among the experts consulted is that the main challenge of the reform is not to include the employees of the Judiciary, which include classes currently with high salaries and benefits.

“The selectivity in the treatment of public servants does not work, it would need isonomy as a basic principle, even to avoid legalization”, says Damasceno.

Another point of attention that she points out is the review of retirement for police officers and pension for family members, which will result in an increase in expenses. “This shows a selective treatment for a category of support base of the president”, he says.

For Gil Castello Branco, restricting the stability of employees only to those with typical careers in the State is a “controversial” point. According to him, “the others would lose stability and would be hired for a defined period, or not”.

He assesses as “worrying” the possibility of dismissing employees in the event of “performance inefficiency”, due to “a political environment as troubled as that of recent years”.

“In the same way, it seems negative to me, for example, the elimination of the current limits for the occupation of commissioned positions and functions of trust. In this way, the occupation of these posts will be allowed, without restrictions, by people without permanent functional ties with the Public Administration”, he says.

Expectation for processing

Gil Castello Branco states that the administrative reform is highly complex. The Proposed Amendment to the Constitution (PEC) current, “altered 27 sections of the Constitution and added another 87”. He assesses that the process is being slow, “including by the President of the Republic”.

His expectation is that the administrative reform will not advance in 2022, as it is a election year. “The parliamentarians and the Executive are certainly not interested in debating the issue that involves one of the largest and most organized professional categories in the country – that of civil servants -, which have been opposed to the reform”, he says.

The combination of pressure from public servants and the election year also makes Damasceno not believe that the reform will be voted in 2022, but in 2023 onwards.

For her, another indication she said is that the government “does not have very credible data on her impact. He even spoke of savings of R$ 300 billion, R$ 450 billion, now R$ 800. But we don’t know what is behind this number, if it would come with a career review, outsourcing, the figures are not detailed. And this failure to present numbers greatly affects the carriage’s ride”.

The problem, according to the researcher, is that Brazil is urgently in recovering its capacity to generate primary surpluses, with sustainable planning, and this requires cutting spending on civil servants.

Luciano Nakabashi states that “the government should do nothing more in 2022. It has done little in the mandate, I don’t think the reform is capable of moving forward in an election year in a government that has done little in terms of reforms.”