Government to Cut Benefits and Pensions in Bid to Balance Books

12/30/2014 - 10h02

Three days from the start of Dilma Rousseff's second term as president, the government announced on Monday (29) the introduction of tougher rules on the concession of state benefits and social security payments.

The aim is to make savings of US $6.7 billion a year from 2015, equivalent to 0.3% of GDP, by reducing spending on unemployment benefit, salary bonus, pensions due to death and benefits for illness, as well as a benefit paid to small-scale fishermen.

These measures are part of the government's project to balance the books and recover some economic credibility. They will guarantee 25% of the public surplus for 2015 promised by the incoming finance minister, Joaquim Levy.

The government's assessment is that spending on these benefits was spiraling out of control. Spending on pension payments due to death, for example, increased from US $14.4 billion in 2006 to US $32.2 billion in 2013.

The changes will have to be approved by Congress and will not affect those who currently receive the benefits. They will come into effect for those granted benefits from the beginning of 2015.

Under the new rules, the time the claimant is required to have contributed in order to receive unemployment benefit will change from six months to 18 months for the first request, and to 12 months for the second. From the third request, it will remain at six months.

Unemployment benefit for small-scale fishermen will be equivalent to one minimum wage, for fishermen who are entirely dependent on this activity. Fishermen will also have to choose which benefits they prefer to receive - it will not be possible to claim unemployment benefit and health insurance, for example.

Another measure will establish that claimants must make 24 months of pensions contributions in order for their spouse to receive a pension in the event of their death. In addition, the couple must have been married or had a civil partnership for at least 24 months - currently there is no minimum period of time required.

These measures should help to reduce spending on a benefit which already exceeds US $18.5 billion.

Virtually no country has social security legislation as generous as Brazil's regarding the spouses of those covered. Currently, workers are only required to make one contribution in order for their spouses to receive the benefit after their death.

Spending on pensions represents around 23% of the budget of the Ministry of Social Security (INSS), and as such, any reduction in this area will have a significant impact on overall social security spending.

Translated by TOM GATEHOUSE

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