Violent protests in Brazil? What’s this about?
Brazilian President Michel Temer on Tuesday made new concessions to ease passage of an unpopular pension reform bill, leading police unions to try and invade Congress in the latest angry demonstration from a labor group.
The watered-down proposal, which has faced pressure from skittish lawmakers, has raised doubts among investors about how close it will come to the original goal of narrowing a huge and growing budget deficit.
After the details of the new proposal were revealed on Tuesday, protesting police unions clashed with congressional guards in riot gear, who used tear gas and stun grenades to disperse the demonstrators from the front doors of Congress.
The protest underscored the unpopularity of a reform that is at the heart of Temer’s austerity program, which aims to rescue the Brazilian economy from its deepest recession on record.
Temer agreed to set a lower retirement age for women, police, teachers and rural workers and grant more generous transition rules for workers after allies’ concerns delayed the bill’s formal presentation in Congress until Wednesday.
Finance Minister Henrique Meirelles told Reuters in an interview that the changes will reduce government savings from the reform by 20 percent to 25 percent in the next 10 years, and by nearly 30 percent over a 30-year horizon.
Pension reform is a contentious issue in Brazil, which has one of the world’s most generous social security systems and an average retirement age of 54.
That is a really low retirement age.
COMPARING LIFE EXPECTANCY AND RETIREMENT AGES
Well, perhaps Brazilians have a lower life expectancy….
According to the latest WHO data published in 2015 life expectancy in Brazil is: Male 71.4, female 78.7 and total life expectancy is 75.0 which gives Brazil a World Life Expectancy ranking of 65.
The ranking doesn’t mean a hell of a lot. And that’s life expectancy from birth.
This link shows that the expected age at death, given you survived to age 20, is 73.5 for men and 80 for women.
Compare to the U.S., where from age 20, the expected age at death is 77.8 for men and 82.2 for women.
So Americans live 2-4 years longer than Brazilians, on average.
The average retirement age in the U.S. is 63, and I would argue that’s too low.
We live 2-4 years longer than Brazilians, but they retire 9 years younger?
TIMELINE OF EVENTS
Here are related stories, going back about a year. I will put these in chrono order.
The new government is already talking of raising the retirement age, drawing the wrath of powerful unions and pensioners groups. Senator Paulo Paim, from Ms. Rousseff’s Workers’ Party, or PT, has likened any such move to a war on workers.
“In Brazil, whenever there is a crisis, the first action is to take it out on the working class,” Mr. Paim said. He is leading a group of lawmakers vowing to oppose Mr. Temer’s likely proposal.
What almost no one disputes is that Brazil’s public pension system is in frightful shape. This year it is projected to fall short by 130.8 billion reais (about $37 billion), a 47% increase from its 2015 deficit. The shortfall is projected to soar another 66% to 217.7 billion reais by next year. Brazil already spends roughly 41% of its federal budget on pensions, compared with about 24% in the U.S.
“Brazil is trying to correct a very weakened fiscal story,” said Lisa M. Schineller, an analyst with Standard & Poor’s, one of three major ratings firms that have reduced Brazil’s credit rating to junk since last year. “Clearly, social security is a component that’s weighing on fiscal performance.”
The problem boils down to math: Brazilians retire too soon and contribute too little to generate the benefits they receive.
The average pension is a modest 1,300 reais or $374 a month. But in Brazil, women can retire at age 55 or after working for 30 years, whichever comes first; men can do so at 60 years of age or after 35 years of labor.
The upshot is that the average Brazilian retires at age 54 in a country where life expectancy is 75.7 years and rising. The government calculates that by 2060 there will be only two workers for every retiree, down from a nine-to-one ratio today. Meanwhile, benefits are indexed generously for inflation and GDP growth.
Yeah, that wasn’t sustainable.
By the way, the reason Temer was the Acting President at the time, was the President Dilma Rousseff had been charged with all sorts of fiscal shenanigans, was formally charged in mid-May 2016 (after the investigation had kicked off in 2015), and finally removed from office in August 2016. At which point Temer became the President.
September 11, 2016: Brazil’s Temer Says Pension Reform Will Not Be Approved Quickly: Paper
BRASILIA (Reuters) – The pension reform to be proposed by the Brazilian government will not be approved quickly, President Michel Temer told newspaper O Globo in an interview published on Sunday.
Temer said he plans to meet with union leaders before sending a pension reform bill to Congress. The government plans to introduce a minimum age for retirement, among other changes aimed at reducing a fast-growing budget deficit.
“I don’t believe it will be approved soon. We’ll send it, there will be street demonstrations and it will take time. I doubt this will be debated if there’s a runoff voting (in late October) in the mayoral elections,” Temer was quoted as saying.
The pension reform is part of a broader agenda proposed by Temer to overhaul state finances and rekindle investments after two years of severe recession. Temer has also proposed more flexible labor legislation and a mandatory cap for state spending valid for 20 years.
October 26, 2016: Brazil’s Supreme Court Bars Pension Payouts Rise:
BRASÍLIA—Brazil’s Supreme Court on Wednesday spared the administration of President Michel Temer added fiscal trouble by ruling that tens of thousands of retirees can’t seek an increase in their payouts.
The court’s 11 justices voted 7-4 that early-age retirees who continue to work and to contribute to the pension system can’t ask for an increase after a few years, a possibility the government argued was against the Constitution.
Advocates of the pension benefit recalculation argued that, in a country where workers, regardless of their age, can retire after 30 years of service, added time in the workforce with mandatory social-security contribution should entitle them to a larger payout.
October 6, 2016: Brazilian workers outraged over proposed pension reforms:
Brazil’s President Michel Temer is expected to put forward in the coming weeks a proposal to reform the country’s pension system. There are no details yet on the plan, but what little is known is already causing concern among workers.
By the current laws, workers could retire as early as age 54, eleven years sooner than a widely anticipated proposal that would raise the age to 65.
It’s expected to be part of a pension reform plan coming soon from President Michel Temer, part of his “tough love” campaign to re-balance the country’s finances.
Most economists agree that Brazil’s social security system is not sustainable long-term and that changes are necessary to deal with a growing deficit. But any measures to re-balance the program are bound to meet with strong resistance.
The leftist groups and social movements that protested against the impeachment of Dilma Rousseff have been saying they will take to the streets again to fight any measures set to remove or reduce workers’ rights.
January 23, 2017: Brazil Government Rules Out Changes to Pension Reform Plan
Compromise runs risk of undermining reform, Cabinet chief says
Temer’s top aide says investors have priced in plan’s approval
Brazil’s government has ruled out significant changes to its pension reform plan as the market has already priced in its approval in its current form, according to President Michel Temer’s top aide.
Expressing confidence that Congress would pass the government’s proposal in the first half of 2017, presidential chief of staff Eliseu Padilha said that there would be no negotiating over the plan’s key elements, including a minimum retirement age.
“The government cannot compromise without running the risk of undermining the reform,” said Padilha in an interview Friday at his office in Brasilia, emphasizing that approval is fundamental to getting Latin America’s biggest economy back on track.
Pension reform is an essential part of Temer’s plans to restore Brazil’s battered public finances. The country spends over 8 percent of gross domestic product on pension benefits, a number that the Organization for Economic Cooperation and Development forecasts will grow to 16 percent by 2050 unless there are changes. At present, Brazil has no minimum retirement age and several different pension systems for the private sector, civil servants and the military.
The government’s proposal would establish a minimum retirement age of 65, requiring workers to contribute for 49 years to claim full pension benefits. Civil servants would be subject to the same rules as private sector workers. Military personnel are excluded from the reform plan, though Padilha said the government is working on a plan that would address the particularities of their profession.
Among the aspects of the proposal that Padilha considers “absolutely non-negotiable” are the establishment of a minimum retirement age, setting the same pension regime for civil servants and private sector workers, and tightening the conditions for inheritors to receive the benefits of the deceased.
February 9, 2017: Why Pensions Top To-Do List of Brazil’s President: QuickTake Q&A
1. What’s the problem with Brazil’s pensions?
Brazil spends more than 8 percent of its gross domestic product on pension benefits, according to official government figures. Though this is slightly below the average for countries in the Organization for Economic Cooperation and Development, Brazil has a younger population than its peers. Economists attribute the hefty cost to the lack of a minimum retirement age and the existence of several different pension systems.
2. What is Temer’s proposal?
At present, there is no minimum age for retirement in Brazil. Temer would establish a minimum retirement age of 65 for both men and women, and require 49 years of contributions to receive full benefits. These rules would apply to everyone, even civil servants. The average retirement age in Brazil right now is about 58. Of all the OECD countries, only workers in Luxembourg retire at a younger average age. There would be a gradual transition to the new system for men currently over 50 and women over 45. The military was strategically left out of the reform proposal, but the government says that’s just for now.
3. Who’s against this?
Unions say Temer’s reforms would strip Brazilians of their constitutional rights, by restricting their access to guaranteed social benefits. They argue that, rather than limiting pension benefits, the government should be looking at reducing tax breaks, closing loopholes and fighting the tax evasion that reduces the amount of revenue available for pensions. A study by Denise Gentil, a professor at Rio de Janeiro’s Federal University, says there is no pension deficit. She argues that, if all of the taxes and contributions that are supposed to fund Brazil’s entire social safety net — which includes pensions — were used for that purpose, they would be sufficient to fully fund all expenses. The government sometimes diverts funds to other purposes, such as discretionary spending.
4. How much money are we talking about?
The pension fund covering Brazil’s 1 million retired civil servants and military ran a deficit of over 70 billion reais ($22.4 billion) in 2016, while the fund for Brazil’s 24 million private sector pensioners was over 140 billion reais in the red. All of Brazil’s pension systems are pay-as-you-go, meaning the active labor force pays for the pensions of the currently retired. In that regard, the outlook is bleak. An estimate from the national statistics agency shows that, while the active population will fall 6.7 percent by 2060, the number of retired people will grow 263 percent. By then, with the system unchanged, Brazil would be spending 17.5 percent of its GDP on pensions, according to government figures. Because public spending is capped by law at the rate of inflation for at least the next ten years, more pension spending will mean less public investment and social spending in areas such as health and education.
February 23, 2017: Fixing Brazil’s pension problem
At last the government is dealing with a threat to the country’s future
Brazilians start drawing their pensions when they are 58 years old on average, eight years younger than Americans and 14 than Mexicans (see article). Members of some groups can retire even earlier. Female teachers, for example, need to spend just 25 years in the classroom to get a full pension and even fewer for a partial one; many leave before they turn 50. Widows inherit their spouses’ full pension (provided they are 44 or older) without giving up their own. In the OECD, a club of mostly rich countries, pensions replace an average of around 60% of pre-retirement income; in Brazil, 80%.
Plush pensions have their origins in the constitution adopted in 1988, which sought to confer as many rights as possible on Brazilians who had suffered under two decades of military rule. The constitution also recognises rights to education and health, but giving a pensioner a monthly cheque is easier.
Geronto-generosity hurts everyone else. The pensions bill consumes more than half the government’s non-interest spending and, if nothing is done, will within ten years gobble up 80%. As a share of GDP, Brazil spends 50% more on pensions than do members of the OECD on average. Yet it has only half as many over-65-year-olds as a share of the population. The skewed system diverts money from schools, clinics and infrastructure and lures people out of the workforce. The ongoing pension deficit from year to year accounts for more than half the budget deficit of 8.9% of GDP. That is a big reason why Brazil’s benchmark interest rate is as high as 12.25%. Extravagant pensions thus make it hard for the economy to grow. The country is undergoing the longest and deepest slump on record. If Brazil is to restore confidence in its economic future, it must do something about its pensions.
A good start
Michel Temer, Brazil’s president, therefore deserves credit for proposing reforms that would make a big difference. Earlier governments tweaked the system. The reforms proposed by Mr Temer, who became president last year after the impeachment of his predecessor, Dilma Rousseff, would go much further. First, they would apply a minimum pension age of 65 to almost everyone (female teachers included). The stipulation of the pensionable age would be removed from the constitution, making it easier to raise the threshold as lives lengthen. To qualify for the most basic pension, all but the poorest would have to contribute for 25 years, rather than just 15. Benefits above that floor would no longer rise in step with the minimum wage, which increased by 80% in real terms in the decade to 2015. Beneficiaries will not be able to draw more than one pension; widows will receive smaller ones.
March 19, 2017: Nationwide Protests in Brazil Against Pension Reform
In São Paulo the protest was peaceful but in other cities such as Rio de Janeiro and Brasilia, protesters clashed with police.
SÃO PAULO, BRAZIL – Thousands once again took to the streets in Brazil to protest on Wednesday, this time against the government’s proposed pension reform. In some cities, public transportation came to a halt, leaving millions with no way to go to work.
While in São Paulo the protest was peaceful, in other cities such as Rio de Janeiro and Brasilia, protesters clashed with police.
After a tumultuous early morning rush hour, with no public transportation available, thousands gathered on Avenida Paulista in the early afternoon to protest labor and pension reforms proposed by the government. The protest in the largest city in the country was peaceful.
Former President Luiz Inacio Lula da Silva participated in the protest, speaking against the Social Security reform at the end of the rally. According to Lula the current administration wants to end the gains of the working class through labor and welfare reforms.
In Rio de Janeiro, protesters concentrated around the Igreja da Candelaria in the late afternoon and marched on to Central do Brasil, Rio’s main train station.
Although most of the protest was calm, a group of demonstrators clashed with police in Cinelandia, and military police ended up throwing tear gas demonstrators and clients at the Amarelinho bar one of the most traditional and old in the city.
Brasilia, registered some of the most violent clashes with landless rural workers, family farmers as well as those demonstrating against the pension reform demonstrators occupying the Ministry of Finance for nine hours. Demonstrators broke down doors, damaged equipment and scribbled on walls. According to the organizers, 1,500 people participated in the occupation.
The pension reform, being discussed at the Chamber of Deputies, among other things increases the minimum retirement age to 65 years for men and women, with a minimum contribution of 25 years.
SAO PAULO (Reuters) – Brazil’s President Michel Temer said on Tuesday a pension reform proposed by his administration would only apply to federal employees and would not address systems managed by state governments or large cities in the South American country.
In an apparent attempt to dilute an unpopular reform that is already provoking opposition, Temer said planned changes would only apply to those included in the federal pension system. He said that many state governments were already adjusting their own pension systems or were planning to do so.
“Pension reform is for federal employees,” Temer told journalists in a statement, adding that the decision followed lobbying by politicians.
Brazil’s center-right government has repeatedly said that reining in pension costs by imposing a minimum retirement age and increasing contributions is essential to tackling a budget deficit that hit 9 percent of gross domestic product last year.
Investor enthusiasm for Temer’s business friendly reform agenda helped make its currency and stock market amongst the best performing in the world last year.
March 30, 2017: Anger Stirs in Brazil as Temer’s Pension Drive Ignores Voters
Government failing to get public opinion behind reform plan
Unpopularity risks reform’s approval chance, market rally
A posse of shadowy ghouls lurks under the cape of a cartoon vampire bearing a passing resemblance to Brazil’s President Michel Temer on the fliers being handed out in downtown Brasilia one recent afternoon.
“They want YOUR BLOOD,” the pamphlet warns. “And your pension.”
Temer’s administration has proved adept at working the corridors of Congress but has had less success conveying its message to the Brazilian people. While the strategy has managed to get parts of his agenda through Congress, the risk is that the government will spark a popular backlash over its controversial pension reforms just 18 months away from elections.
Legislators running scared of angry voters may only approve a watered down reform that does little to address the country’s long-term problems.
There remains “a disconnect between the government’s leadership, who recognize the need to approve a robust reform to guarantee an economic recovery, and its rank and file, who is understandably concerned with the blowback from voters,” Eurasia Group wrote in a note published on March 16.
Temer came to power vowing to rebuild Brazil’s financial credibility regardless of his popularity, as he says he won’t seek re-election. But, without deep changes to the pension system, his own aides say any success in reining in public spending will be short-lived. A local market rally over the past year has started to tail off in recent weeks on signs that the reform may be faltering.
Overhauling pensions — or obliging workers to work longer — is rarely a vote-winner, anywhere in the world. Unsurprisingly then, the Brazilian government’s proposal is proving a tough sell. According to a poll conducted earlier this month, 72 percent of Brazilians are against the reform and only 11 percent favor it — the others didn’t express an opinion.
“There’s a perception that the government has lost the communication battle,” said Ricardo Tripoli, leader of the Brazilian Social Democracy Party, one of the parties in Temer’s coalition. “Without detailing how the changes will come about, it’s harder to overcome opposition.”
The Brazilian government has a strong case. It argues that the current system’s generosity costs 13 percent of GDP — well above the average of developed countries — and runs unsustainable deficits. A drop in birth rates and rising life expectancy exacerbates the problem. Youthful pensioners who start enjoying their benefits in their fifties, such as Temer himself did, also make a compelling argument for reform.
“If we don’t do this now, we’ll have to do it in three years’ time,” Temer said in a speech on Wednesday. “If not, in seven years the country will grind to a halt.”
A marketing war is unfolding across Brazil, and so far the government is on the back foot. Its decision to exempt the military, and more recently, state and municipal civil servants have undermined its argument that the pain will be shared equally.
Oh dear lord, this is not merely marketing.
People will lose something due to these reforms… they want theirs NOW!
It’s not marketing to make people think out 10 to 20 years — it takes a lot more than an ad campaign. It looks like they won’t get meaningful reform in this round, but they can lay the groundwork so people can finally understand that the money can and will run out.
April 6, 2017: Brazil’s pension reform a crucial signal for investors:
Binary outcome looms for country’s markets and their strong gains over past year
The next reform, being argued over at present, is to change the pension system and institute a new universal retirement age of 65. This is in line with much of the developed world, and would replace a current system where many are able to retire on full benefits in their early 50s. Naturally it is unpopular and there is much political horse-trading at present.
Thankfully, a litmus test is in the offing. Pension reform negotiations are coming to a head. No reforms are more important. Reaching the federally mandated cuts in spending will be impossible without drastically shifting pension entitlements. The last attempt at pension reform, almost 20 years ago, failed by one vote; if this effort fails it could be a while before there is another. And failure now would also damage the government’s political momentum for other reforms.
The reverse is also true. Meaningful pension reform would be the single most meaningful step towards putting Brazil’s finances on a sustainable basis. The negotiations in Congress are due to come to a head in the next few weeks.
This looks like a binary issue for markets. Investors interested in Brazil should monitor the headlines on pension reform. With success, Brazilian assets should continue their rally. With failure, and with messy elections looming, it could be time to cut back once more.
SAO PAULO (Reuters) – Brazilian President Michel Temer plans to water down its landmark pension reform proposal to ease lawmakers’ resistance to the controversial bill key to rebalance the government’s depleted finances.
Temer said in a radio interview on Thursday he has authorized the lawmaker sponsoring the plan to alter its terms as long as he maintains the bill’s minimum retirement age. He did not specify what changes could take place.
The reform plan, submitted last year to Congress, sets a minimum retirement age at 65 for both men and women and requires more years on the job for workers to gain full pension benefits.
Those points and others to limit benefits have drawn criticism from public servants and labor unions alike, irking lawmakers who face elections next year.
A newspaper survey of lawmakers on Wednesday showed support for the proposal fell well below the 308 votes necessary to pass the lower house of Congress, with only 92 in favor and 242 against.
Arthur Maia, the lawmaker sponsoring the legislation, told reporters later on Thursday that he will change the proposal to protect the poorest without hurting the “backbone” of the amendment.
He is considering altering the transition rules for those nearing the retirement age, easing pension requirements for farmers and agricultural workers while keeping some special benefits to teachers and police.
Maia said he will unveil his proposed changes on April 18.
Brazilian President Michel Temer said his government has offered “all it could” to ease lawmakers’ resistance to a landmark pension reform bill, key to rebalance the government’s strained finances, according to an interview published on Saturday.
Temer’s center-right government, which took office last year pledging to tackle Brazil’s massive government deficit, proposed five concessions to wavering congressmen on Friday, amid signs of resistance among legislators to the unpopular reform.
These included easing the rules on the transition to the new system and on rural workers, pensions for police and teachers, as well as benefits for the elderly and disabled.
Temer told the Folha de S. Paulo newspaper that he would not compromise on the central tenet of the legislation, which is introducing a minimum retirement age. While the government wants a minimum age of 65 for men, it could discuss reducing that for women, if necessary, Temer said.
“If we set the minimum age for men at 65, and 64 or 63 for women, it would not mean a big change,” Temer said, adding that a different age for women is still not under discussion.
The pension plan, submitted last year to Congress, is aimed at curbing a growing deficit in Brazil’s generous pension system, meant to provide rights guaranteed in the country’s 1988 Constitution. It would require more years on the job for workers to gain full pension benefits.
April 7, 2017: Brazil Takes Knife to Pension Plan to Ensure Its Survival
Government willing to concede up to 20% of projected savings
Survey showed significant opposition in Congress to proposal
The Brazilian government is prepared to give up as much as one-fifth of the potential savings from its pension reform bill to ensure its approval by Congress, according to a person with direct knowledge of the negotiations who was not authorized to speak publicly.
A new proposal will be unveiled on April 18, including changes to protect the most vulnerable, the bill’s rapporteur in the lower house, Arthur Maia, told reporters on Thursday. Although he said the modifications would maintain the fiscal impact of the reform, the government is aware that, without concessions, the bill won’t move forward in Congress.
Other changes to its original proposal that the government is currently mulling include a reduction in the minimum retirement age for rural workers and allowing retirees to receive multiple benefits worth up to two minimum wages, the official said.
The approval of a “reasonably robust” pension reform remains on track, Eurasia Group political consulting firm said in a report published Thursday night. It estimates that there is a 45 percent chance that around three-quarters of the proposal will be approved and a 25 percent chance that more than half will be passed.
The original proposal was projected to save 678 billion reais ($216 billion) over the next ten years. The finance ministry declined to comment for this article and the press office of the presidential palace said negotiations over the pension plan were ongoing.
The pension reform is currently scheduled for a first vote on May 2.
POLITICS: THE ART OF THE POSSIBLE
It’s a difficult position for Temer and the Brazilian politicians in general. The current proposal sounds inadequate to fix the problem for sustainability, but it is difficult to make such a huge change in one step.
Being in the finance world myself, I understand the view of the markets on this, but protestors (and, more importantly, voters) don’t particularly care what “investors” think. There’s a couple steps between “those people” and “the stuff I want… I EARNED!!!”
I know in the U.S., many people my age (40s) are assuming that Social Security will get whacked again before we get any benefits… if we do not get means-tested out of them. But keep in mind that message has been decades in the making. I started hearing those rumbles 20 years ago. It takes a long time to get people to swallow this sort of reality.
DISTANCE CAN MAKE THINGS CLEARER
I usually concentrate on U.S. public pensions, especially in Illinois and Chicago. The kinds of attitudes being shown with Brazilian protestors (how DARE you change the deal?!) I saw in last year’s Day of Action in Chicago.
There is the assumption that there are some rich people to soak, and that the money could be forthcoming, only if the politicians would back them.
The thought that the politicians can’t just will money into being doesn’t seem to be a consideration. That the politicians realize the money providers can take their money elsewhere… while politicians from a decade or two ago could always say “we’ll pay for it… we’ll pay LOTS more for it… but not NOW. Later. The money will come later.”
But now Later is here. Funny how that happens.
No, I’m not expecting U.S. pensioners to look at Brazil at all. But the problem is a lot clearer when it’s not your own benefits at stake, isn’t it?
It’s pretty clear that 54 is way too young for a retirement age, even in Brazil. Just like 61.5 is way too young a retirement age in Chicago.
It’s pretty clear that Brazil needs outside investors to thrive financially. Just as Chicago is very dependent on the financial sector for its revenue.
It’s pretty clear that the investors in Brazil will not just sit around to have their money bled off for too-young retirees for benefits that are too rich in boosts.
Isn’t it interesting how much clearer the problem is when you’re 5000 miles away?
Vladimir Bukovsky Makes the New York Times
Pensions Catch-Up Week: Dallas Police and Fire (and Houston)
Kentucky County Pensions: 60 Percent Fundedness and Decreasing is Awful