Congress and Supreme Court pose obstacles to pension reform

. Feb 28, 2019
supreme court bolsonaro pension system Jair Bolsonaro (L) and Supreme Court Chief Justice Dias Toffoli

The government’s proposal to overhaul the pension system has been submitted to Congress, but has a long way to go before becoming effective legislation. The bill must make it through two committees and two successive voting sessions in the lower house, before going through the entire process again in the Senate. As what the Jair Bolsonaro administration is proposing involves altering the Constitution, each of the four votes will require two-thirds of support for approval.

While there is a general atmosphere in favor of passing some sort of reform to the pension system, it is expected that the bill will undergo an overhaul of its own at each stage of this legislative process. This means delays and a potentially watered-down final product, both of which could see the financial markets abandon the Bolsonaro government.

</span></p> <h2>Conditioned support</h2> <p><span style="font-weight: 400;">It was unexpected at the time, but investors (both domestic and foreign) put their faith in Jair Bolsonaro during the election campaign because of the soon-to-be Minister of the Economy Paulo Guedes and his plan to launch profound structural reforms. While the fledgling government has been rocked by political scandal, its support from the markets has not been affected.</span></p> <p><span style="font-weight: 400;">This goodwill, however, comes with its own terms and conditions. If the government is unable to reform the pension system by the end of the year, or if the savings of the proposal are neutered during its journey through Congress, the markets will jump ship.</span></p> <p><span style="font-weight: 400;">Weathering a political crisis is one thing, trying to do so amid a tumbling currency and market distrust is another. A poorly executed pension reform could be the death knell for the Bolsonaro government.</span></p> <p><span style="font-weight: 400;">What&#8217;s more, the administration is all-in on approving the reform, meaning that very little will get done until the process is completed. Privatizations of state-owned companies, another pillar of Paulo Guedes&#8217; economic plan, will not be touched while the pension reform is still pending, according to Privatization and Divestment Secretary Salim Matter. </span></p> <h2>Reforming the pension system reform</h2> <p><span style="font-weight: 400;">It is seen as a given that political parties in Congress will demand changes to certain provisions in the pension system reform proposal, tweaking some and scrapping others. The first to go is likely to be the so-called Continuous Payment Benefit (BPC). By Paulo Guedes&#8217; proposal, this particular pension—intended for elderly people living in poverty—would undergo significant cuts. At 60 years old, the poorest in Brazil will have the right to receive only BRL 400 per month—less than half of the legal minimum wage. Only when these pensioners reach 70 years of age will they begin receiving a full minimum salary.</span></p> <p><span style="font-weight: 400;">Likewise, the harsh rules for rural workers are likely to undergo some sort of alteration over the coming months. Mr. Guedes&#8217; pension program would impose a minimum yearly contribution of BRL 600 for this segment of the population. Previously, rural workers paid social security tax as a percentage of their production. It is expected the minimum contribution will be made significantly lower, with opposition groups petitioning for a figure in the realm of BRL 200 per year.</span></p> <p><span style="font-weight: 400;">The view from Congress is that the government could have <a href="">avoided this scenario</a> of having its reform bill picked apart. Leaders of political parties complain that Paulo Guedes&#8217; economic team did not consult members of Congress before submitting its proposal, which may have saved the headaches and delays of having the bill pored over and questioned by the lower house.</span></p> <h2>An added obstacle</h2> <p><span style="font-weight: 400;">As if the congressional tug of war was not enough for the government, Jair Bolsonaro&#8217;s administration may face another opponent to its pension reform proposal in the shape of the Supreme Court. With the responsibility of safeguarding the constitution, there is a chance that the country&#8217;s highest court will have a significant role to play in a bill which promotes significant changes to <a href="">Brazil&#8217;s magna carta</a>.</span></p> <p><span style="font-weight: 400;">As a way of delaying or potentially blocking parts of the reform, opposition parties have the option to file Direct Actions for the Declaration of Unconstitutionality (ADIs) to the Supreme Court. An estimated 10 measures may be subject to the justices&#8217; perusal, such as the establishment of minimum retirement ages and transition rules for public servants.</span></p> <p><span style="font-weight: 400;">While the Supreme Court has established that it is in favor of the pension reform and will not stand in its way, one of the bill&#8217;s proposed changes could sway the justices&#8217; opinion.</span></p> <p><span style="font-weight: 400;">The government&#8217;s plan includes a measure which would make it easier to adjust the retirement ages of Supreme Court justices. Once members of the court retire, the sitting president has the power to appoint the replacement.</span></p> <p><span style="font-weight: 400;">Currently, Jair Bolsonaro is set to have two Supreme Court appointments before the end of his term. The retirement age stands at 75 years of age, and Justices Celso de Mello and Marco Aurélio will leave their posts before 2022. However, if the government were to reduce this cut-off to 70, two more ministers (Ricardo Lewandowski and Rosa Weber) would step down, leaving Jair Bolsonaro with almost 40 percent of the full Supreme Court.</span></p> <p><span style="font-weight: 400;">The appointment of members to Brazil&#8217;s Supreme Court is completely at the discretion of the sitting president. Nominations must pass confirmation hearings in Congress, but they are little more than a rubber stamp.</span></p> <p><span style="font-weight: 400;">In the past, Supreme Court Justices have been thoroughly personal appointments. Fernando Henrique Cardoso put close friend Gilmar Mendes into a seat on the board, while Fernando Collor selected his own cousin, Marco Aurélio.

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Euan Marshall

Originally from Scotland, Euan Marshall is a journalist who ditched his kilt and bagpipes for a caipirinha and a football in 2011, when he traded Glasgow for São Paulo. Specializing in Brazilian soccer, politics and the connection between the two, he authored a comprehensive history of Brazilian soccer entitled “A to Zico: An Alphabet of Brazilian Football.”

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