Repeal of pension reform would cost BRL 240 billion over the next 4 years, says IFI

According to calculations by the Independent Fiscal Institution of the Senate (IFI), the repeal of the social security reform – approved in 2019 – would generate an additional cost of around BRL 240 billion to public spending over the next four years.

Upon taking office at the Ministry of Social Security on Tuesday (3), the new Minister Carlos Lupi said that he intended to reassess “item by item” the Social Security reform, which he calls “anti-reform”. Lupi even said that he would create a “quadripartite commission”, with workers’ unions, employers’ unions, retirees and the government to discuss the issue in depth.

Experts heard by CNN reinforced the concern about the increase in public spending in the coming years with a possible repeal of the social security reform.

“I think that the repeal of the Social Security reform will not happen, as it is not compatible with the government’s main economic guidelines. Undoing the reform would greatly increase public spending and cut space for other agendas, such as increased investment, minimum wage ”, highlighted economist Pedro Nery, in an interview to CNN this Wednesday (4).

Nery highlighted that the estimate based on IFI calculations is not linear, as the impact of the reform is growing and, therefore, it has a greater impact each year.

Even so, if there were R$ 60 billion more in expenses per year, it would be the equivalent of Bolsa Família expenses, compared Raul Veloso, president of the National Institute of Higher Studies (Inae).

“If revoke the changes that were painfully approved in 2019, we will be going against the grain of solutions for a treatment of budgetary rigidity”, said the economist.

According to economist Alexandre Schwartsman, former director of international affairs at the Central Bank, the moment to start a discussion about the reform is not the best, since one of the biggest challenges of the new government regarding the economic agenda is the cost control, as assumed by Haddad’s own economic team.

“The timing couldn’t be worse. The Minister of Finance is talking about expanding spending, but approaching the creation of an expense control mechanism to put spending under control, here comes the Minister of Social Security and says something completely in the opposite direction, ”he declared. “That is, any spending control mechanism would not work with the revoked reform,” he added.

For Schwartsman, the most appropriate thing would be to involve discussions about the progress of other reforms in the coming years.

“The Social Security reform changed the trajectory of public spending, now we would need to be discussing an entire agenda that should be done, such as administrative reform, tax reform… will the reform agenda stop to discuss what was already approved back there?”, questioned.

Pension deficit and surplus

Lupi highlighted at his inauguration that “Social Security is not in deficit” and that he would prove the statement “with numbers, data and information”. He explained that the problem is that the Social Security account includes non-social security expenses – such as the benefits of continued provision, the BPC – and does not take into account income with social security allocation – such as PIS and Cofins.

According to the new minister, the result would be positive if social expenses were withdrawn and the collection linked to security were added. consulted by CNN specialists disagreed with the argument defended by Lupi to ensure a social security surplus and cultivate a debate on Social Security reform.

“Public Social Security does not have a surplus and, even including revenues linked to social security, such as PIS and Confins, expenses with Bolsa Família, Abono and BPC also exceed collections and the deficit would be a little smaller, but even so, the equivalent to 2.2% of GDP until November”, says Rafaela Vitória, chief economist at Inter.

“In addition to the high expenditure on social security benefits of 8.2% of GDP, it is necessary to look at our demographic evolution and measure the impact considering the current rules”, he added.

The collection of the General Social Security System (RGPS) was R$ 466.195 billion from January to November 2022, against R$ 734.11 billion of resources allocated to Social Security benefits. In all, the result was a deficit of R$ 267.915 billion in the period. Raul Veloso pointed out that the expenses could be even higher when including social security expenses in the calculation.

“As for Cofins, PIS, etc., these are revenues from the OSS – Social Security Budget – and not from Social Security. If you follow this logic, you will also have to include the other social security expenses, including Emergency Aid. With all that in there, the deficit of this cluster will be even greater than the specifically social security part, in the opposite direction of what the minister wants to show”, evaluates the economist.