Bolsonaro and Guedes Fight to Reform Brazil’s Unsustainable Pension System
In Brazil, it is typical to retire at 55, with 70% of your salary for life...unfortunately this pension model is entirely unsustainable.
Jair Bolsonaro and friends realize that the state of Brazil’s public finances is precarious, and that is putting it mildly. Stabilizing the Latin American giant’s public finances is of pivotal importance to ensuring economic growth in the future. To that end, Bolsonaro placed the utmost faith in Paulo Guedes…that rare classical liberal economist who holds the reigns of power on the South American continent.
Despite the highly visible decline of the “Pink Tide” and the departure of many key leftist and socialist leaders from office, at the hands of the voters, public spending remains a serious problem. Brazil and Argentina are prime examples of this. The situation is so perilous in Brazil, that public spending is projected to reach 90% of GDP this year. That is potentially catastrophic.
Consider that in Brazil, retiring at the age of 55, and then collecting 70% of your salary for life, is considered the norm. Unions and left-wing political parties want to maintain the status quo, and they are taking to the streets of Brazil in an attempt to force Bolsonaro to shelve the controversial pension reform.
For workers in the vast majority of the world’s nations, they could only dream of the prospect of retiring at 55. A part of the reason that this is possible is that under the current pension system, men can retire after they have contributed into the system for 35 years. For women that figure is 30 years.
So, a Brazilian woman could conceivably enter the workforce at 18, work for 30 years, and then retire at 48.
It sounds great, right? Who wouldn’t want to retire at 48?
A quick perusal of the numbers, however, soon leads us to a favorite word we routinely hear from the left: unsustainable.
The average life expectancy of a Brazilian woman is 79. Under the current system a Brazilian woman can work for 30 years, and then collect benefits for 31 years, if she merely enters the labor force upon becoming an adult, and lives to an average age.
Brazil, without question or doubt, enjoys one of the most generous social security regimens in the entire world. Unfortunately, it is entirely unsustainable, and it is the main reason that Brazil is hemorrhaging money.
In a sign of the highly biased coverage the story is receiving from the international media, an Al-Jazeera article entitled “Work until you die, or die working” paints a hilariously inaccurate picture of Brazil’s supposedly downtrodden workers. The “great injustices” supposedly visited upon them by the maniacally evil Bolsonaro and Guedes would still offer them a more generous package than workers in the vast majority of the developed world enjoy.
Bolsonaro and Guedes are calling for raising the retirement age to 65 for men and women. Teachers, on the other hand, could retire much sooner: 60 for men, and 57 for women. It hardly sounds draconian.
Furthermore, like the Social Security Administration in the United States, Brazil is not taking in enough money from current workers to pay for benefits for its retirees. It is a ticking time bomb. It is a Ponzi scheme on its last legs as i t stands now.
And yes…it is very, very “unsustainable.”
Bolsonaro’s initially more ambitious reform hoped to save 1.3 trillion reales, but the current iteration of the proposal is likely to be watered down to around 1 trillion reales (around USD $250 billion) in savings over the next decade.
For a nation of 200 million people, saving USD $25 billion a year in pension costs is hardly draconian austerity. But it is a start.
Bolsonaro has a fractious situation on hands with Congress, where many recognize the urgency of pension reform, but are unprepared to make unpopular decisions that might anger their constituents.
One of the key principles of “Socialism of the 21st Century” was the concept of “living well.” Lula, Dilma, and their cronies at the Workers Party spent like drunken sailors for decades, without a care in the world as to how ruinous and devastating Brazil’s entirely unsustainable pension system would be for public finances.
Now, Brazil’s chickens are coming home to roost.
Let’s hope that Bolsonaro and Guedes can win over the moderates in Congress. Without serious reform, Brazil’s unsustainable pension system will continue to be the proverbial millstone around Brazil’s neck.