The pension reform war and other battles

BRAZIL ECONOMICS - Report 28 May 2019 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

The approval of a robust reform of the social security system is crucial to set the stage for renewed economic expansion. Measured by the insignificant growth of per capita income, the Brazilian economy is nearly in a depression, and faster growth depends on investments revival, something that will not happen absent removing the risk fiscal consolidation failing, whose cornerstone is approval of a strong pension reform. However, the fiscal adjustment needed to stabilize the debt/GDP ratio is huge, 4 percentage points of GDP, and the pension reform is only one of the conditions for this to occur. It is a necessary although not sufficient condition to comply with the spending cap, and the generation of revenue to produce primary surpluses will only happen with faster economic growth. The current (depressive) phase of the economic cycle is marked by weaker tax revenue.

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