Passing provisional decree gives indication of upcoming pension reform battle

. Jun 01, 2019
BRAZIL POLITICS BOLSONARO CONGRESS Jair Bolsonaro waves inside the Congress building

On January 18, 2019, President Jair Bolsonaro’s economic team issued MP 871/19—a provisional decree which cracked down on fraud in the social security system. The bill will serve as a good thermometer of exactly how much political capital the government has in Congress, in the lead up to the heated debates on the pension reform bill.

</span></p> <p><span style="font-weight: 400;">MP 871/19 aims to scrutinize the benefits given out by the <a href="">pension system</a>—trying to contain the massive drain caused by frauds and irregularities on several fronts. Besides more oversight, the bill establishes stricter eligibility rules for the benefits in the first place. That is the case, for example, of pensions paid to the families of prison inmates. According to the decree, only the families of prisoners in closed regimes will receive the benefit—no longer including those in so-called &#8220;semi-open&#8221; prison regimes.</span></p> <p><span style="font-weight: 400;">The bill also conditions benefits for rural producers to their enrolment on the small rural producers register, and also enhances a revision of sick pay and disability pensions—a process which began during the Michel Temer administration.</span></p> <p><span style="font-weight: 400;">Economy Minister Paulo Guedes&#8217; team estimates yearly savings of BRL 9.8 billion after the bill&#8217;s approval. From 2023 on, however, savings go up to somewhere between BRL 17 and 20 billion per year. According to the government, flagging irregular beneficiaries will allow the social security system to clean up 16 percent of the 5.5 million benefits it currently grants.</span></p> <p><span style="font-weight: 400;">Despite positive savings predictions, these numbers are not considered in the fiscal calculations of the pension reform bill—despite both bills concerning austerity measures, they have very different objectives. This makes MP 871/19 all the more welcome at a time when the government struggles with a <a href="">lack of funds</a>.</span></p> <h2>Passing the decree in the lower house</h2> <p><span style="font-weight: 400;">The resemblance with the pension reform, however, is more on the political field. MP 871/19 will give a good measure of the government&#8217;s support in Congress, as well as exactly how big a challenge it will face to approve the pension reform, when the time comes</span></p> <p><span style="font-weight: 400;">However, if it is to be fully approved, Congress will have to be quick about it. There are several provisional decrees expiring in the coming weeks, and MP 871/19 will become invalid after Monday (June 3). Like all other provisional decrees, it was initially analyzed by a special mixed committee—made up of representatives and senators. The rapporteur of the bill, lower house representative Paulo Eduardo Martins, proposed changes to the original text, which were very well received by the government&#8217;s economic team and approved by the committee.</span></p> <p><span style="font-weight: 400;">Close to its expiry date, MP 871/19 was approved in the House on May 29, after an agreement between the government, unions, and a large part of the opposition. In truth, past experience dictates that once put to a vote, MPs are rarely voted down. The cost for representatives of voting against the measure is higher than if they pass it, even if they do not agree with parts of the legislation.</span></p> <p><span style="font-weight: 400;">Therefore, a deal was made to approve the bill in the lower house. After the opposition promised it would not obstruct the vote, the bill was changed to state that the registration requirement for rural workers should be delayed from 2020 to 2023. The ease in approving the measure was such that it was passed by a symbolic vote, a mechanism usually used for bills which are a general consensus.</span></p> <p><span style="font-weight: 400;">Approved in the House, the measure went on to the Senate, where it should have been voted on Thursday (May 30). As a result of other measures on the agenda, the Senate was unable to reach an agreement and delayed the vote on MP 871/19 for Monday, the last day before the measure expires.</span></p> <h2>Warning signs for the government</h2> <p><span style="font-weight: 400;">The biggest lesson which could be learned by the government from this vote is the need to negotiate in advance. While this clearly applies to provisional measures, which have fixed expiry dates, it is also true for other bills. For measures which change the constitution, for example, the changes are often profound and politicians have little incentive to approve them. The passing of MP 871/19 is a success for the government, but it should be taken with a pinch of salt—this was only a small taste of the challenge to pass the pension reform.</span></p> <hr /> <p><a href=""><img class="alignleft wp-image-18346 size-medium" src="" alt="" width="300" height="37" srcset=" 300w, 768w, 1024w, 610w" sizes="(max-width: 300px) 100vw, 300px" /></a></p> <h6 style="text-align: right;">Written by<br /> <a href="mailto:[email protected]"><strong>Levante Ideias de Investimentos</strong></a></h6> <p>

Felipe Berenguer

Felipe Berenguer is a political analyst at Levante Ideias de Investimentos

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