What’s on the government’s agenda after the Pension Reform?
During the first half of the year, all the government’s legislative efforts were focused on the pension reform. The 379 favorable votes in the first floor vote in the Chamber of Deputies did not end the process, but it does mean that a gigantic step has been taken toward final approval. So, what can be expected from now on? In the fiscal field, the social security reform will not assure fiscal consolidation, and obtaining primary surpluses will require profound changes in other spending areas, along with higher revenues. Either staying under the spending cap, or avoiding being compelled to relax it (which would bring negative consequences about the credibility of the adjustment), depends on growth of revenue. This, in turn, depending on revitalized economic growth and cannot be achieved by clumsy stimuli such as release of money in FGTS accounts, which penalizes civil construction just to give a temporary boost to consumption. Actions are necessary to increase productivity, one of the most important being tax reform. However, instead of pursuing the proposal for a national VAT charged at the destination, the government has opted to push for a flimsy version of a federal VAT associated with a new tax on financial transactions. If this occurs, it will be another opportunity to increase the economy’s efficiency wasted.
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