What’s next for pension reform in Brazil?

Brazil’s lower house will start next week a voting process for the pension reform proposed by the government, after a commission paved the way for the procedure early Friday.

A lower house pension reform commission, set up based on a report by the reform’s sponsor, Samuel Moreira, approved moving ahead with 36 votes in favor and 13 against.

With the approval, the lower house can vote in two rounds on the reform proposal.

Getting the pension reform through congress requires changes to the constitution, which means it needs backing from 308 of the 513 lower house lawmakers. In the senate, the reform requires a two-thirds majority.

Lower house head Rodrigo Maia (pictured) expects to hold the first voting session on Tuesday, while the timetable for second round remains unclear.

Congress goes into recess July 18, so the government is pushing the lower house to have the two rounds before that date to clear the way for the senate vote in coming months.

But Maia did not provide a timetable, saying “the lower house has taken an important step today. This was our first victory and, starting next week, we will work to approve the text in plenary, with a lot of dialogue, listening to all our deputies, building a majority.”

The proposal includes a minimum retirement age of 65 years for men and 62 for women, and an increase in the contribution rates and periods for both public and private sector employees.

The reform would generate savings of up to 1.2tn reais (US$315bn) in 10 years, according to the government, but analysts claim that after various concessions the government made, savings would amount to 500-800bn reais.

ECONOMIC IMPACT

Although the pension reform is essential to reduce government debt and expenses in the long term, on its own it will not guarantee a sustainable long-term economic expansion.

“We need to be very transparent. The approval of the reform will just avoid a fiscal disaster in Brazil. If we implement just the pension reform and stop work on other fronts, such as a tax reform and other measures to reduce bureaucracy, the economic expansion in the medium and long term will not materialize,” finance secretary Mansueto Almeida said at a banking industry event.

Silvio Campos Neto, a senior economist at local consultancy Tendencias, told BNamericas that even if approved this year, the reform’s positive impacts on government accounts will materialize only in coming years - but more importantly the general business environment would improve much quicker.

“With the approval of the pension reform, the political scenario tends to become less tense and the confidence of economic agents, businesspersons, consumers, tends to improve quickly,” Campos Neto said.

Amid the expectations of pension reform approval, the Brazilian real appreciated sharply against the US dollar and the main local stock market index, Ibovespa, went up in recent sessions.