Next Election or Next Generation?

On May 1, International Labor Day, Brazil’s beloved pop-star president, Luiz Inácio Lula da Silva, told a church gathering that a historic day had come. The day he referred to was April 30, when Lula and 27 government officials delivered a proposal to Congress to constitutionally amend public pension and social-security laws. The change would not only cut thousands of dollars from the pensions of officials but also take a substantial amount from lower-paid public servants who receive the equivalent of their full pay, tax-free.

Those who cringe at the thought of “privatized” social security need only examine the complexities and realities in Brazil. Even the nationalist, left-wing business magazine Carta Capital sided with the International Monetary Fund on this one. The IMF has pressured Brazil to reform its pension system, which has a deficit of some US$26.6 billion this year. The Carta article (May 7) was skeptical of the financial markets, overall, as a retirement safe haven but said, “The inequality of the government pension system for the public sector worsened considerably in the past 10 years and has become more and more unsustainable in the long term. The deficit for public pension payouts is 4.1 percent of gross domestic product.” 

The pension amendment is the nation’s top news story. As early as Jan. 15, Veja columnist Sérgio Abranches, a political scientist, called on the newly inaugurated Lula administration to rewrite the book on public pensions and “transform it radically from a regime of inequalities to a regime that is more redistributive of wealth.”

The crux of the problem rests on nearly 12 million government employees, or 6 percent of Brazil’s work force. Retired public ministers receive about 12,570 reals ($4,334) per month. Retired judges and congressmen receive about R8,027 ($2,767). When the average person makes roughly $300 a month, and the average private-sector retiree receives just $129 from the social-security system, the imbalance is obvious.

The change will cap government pensions at R2,400 a month, cut by 30 percent the pension that can be passed on to beneficiaries, and add an 11-percent tax to retirees collecting more than R1,058 from government funds. If approved, the tax would affect 80 percent of retirees and add more than $1.5 billion a year to the pension system, Veja (April 25) explained.

A poll in early May by the firm Ibope found that 78 percent of Brazilians were in favor of the plan and only 7 percent were opposed.  A May 1 editorial in O Globo described the proposal as a “historic chance for the Brazilian political class” that could rescue the state from spending deficits. But Fernanda Nardelli  pointed out in Correio Braziliense (May 1) that 70 million Brazilians in the private sector would be unaffected by the change and that nearly 57 percent of them don’t pay into the social-security system because they either don’t earn enough or work in the informal economy. According to an Ibope poll in March, 70 percent of those polled don’t even know what social security is, Nardelli concluded.

Although Lula’s plan has garnered public support, opposition has come from politicians, many from his own Workers Party (PT). Veja (April 16) reported that only 34 percent of Brazil’s senators and state representatives were in favor of taxing government pensions. Only 28 percent of legislators defend a constitutional change in public-service pension funds; 44 percent are against. The major media have taken to calling these naysayers “the radical wing” of Lula’s party. Luciana Genro, a “radical” São Paulo representative, was quoted in O Estado de São Paulo as saying she would unite “socialists” to block the “reactionary reforms” (March 14). She said the left needed to pressure Lula to drop a plan that is more IMF than PT.

PT party officials have even threatened to dump dissenters. On April 28, government leader Aloizio Mercadante and party leader Tião Viana, in a closed-door meeting with 12 of the 14 Workers Party senators, threatened to oust outspoken critic Heloísa Helena. Istoé reported (May 7) that for Mercadante, “[Helena] is an isolated problem, and without her, reforms would pass without much difficulty.”

Pro-reform O Estado de São Paulo gave top billing to a speech by Lula on May 7: “I intend to make these reforms because I is the only possible way...that we’ll have money to pay retirees. It’s not a question of arithmetic; it’s a decision of whether or not you will think of the next election or the next generation.”