BRASILIA, (Reuters) – A surprise boost to pension benefits approved in Congress late on Wednesday could cost Brazil dozens of billions of dollars in the years ahead, jeopardizing government efforts to rein in spending excesses that threaten the country’s fiscal health.
After approving a broader fiscal savings bill, the lower house of Congress passed an amendment that could raise pension outlays by 40 billion reais ($13.34 billion) in a decade, according to estimates by the Social Security Ministry.
The amendment, which makes the retirement age more flexible, still needs to clear the Senate and President Dilma Rousseff could also veto it.
The defeat shows just how difficult it will be for Rousseff to shore up government finances at a time when her popularity is at record lows and she faces open revolt by members of her 19-party coalition led by Brazil’s largest party, the PMDB.
Many lawmakers from allied parties, including some from Rousseff’s own Workers’ Party, voted for the amendment, highlighting strong resistance to an unpopular austerity push led by Finance Minister Joaquim Levy.
Although the changes would have little impact over the next five years, fiscal experts agree that it could raise the government’s pension bill by more than half a percentage point of Brazil’s gross domestic product over 25 years.
“In the medium to long term you are just adding problems to a (pension) system that was already unsustainable,” said Mansueto Almeida, a Brasilia-based economic consultant. He calculates that cost would climb to 1 percent of GDP in 40 years.
Almeida, who is openly critical of the administration and is considered one of Brazil’s best fiscal experts, said the amendment will likely force Rousseff to try to find a solution to bulging pension costs.
Brazil has one of the world’s most generous pension systems, spending over 10 percent of GDP on retirees in what economists and ratings agencies point to as one of the biggest future threats to its economy.
For Santander Securities strategist Sandro Sobral the surprise vote “confirms suspicions that the relationship between the current government and Congress is far from good enough.”
The leader of the government’s coalition in the lower house, Jose Guimaraes, said the government plans an alternative to overhaul the pension system.
“The government will opt for the responsible path to secure the sustainability of our system,” Guimaraes told reporters. ($1 = 2.9988 Brazilian reais)