Brazil’s New Social Welfare Reform Report Maintains Savings of R$1 Trillion

RIO DE JANEIRO, BRAZIL – Ending rural exporters’ exemption from social security taxes will allow the savings from the government’s Social Welfare reform to remain above R$1 trillion (US$262 billion) over the next ten years.

According to the rapporteur of the bill in the Chamber of Deputies, Samuel Moreira, the tax impact will correspond to R$1.074 trillion (US$280 billion) in the period.

The estimate includes a reduction of R$933.9 billion (US$233 billion) in expenses and an increase of R$137.4 billion (US$34 billion) in revenues (due to higher taxes and the end of exemptions). The original bill, sent by the government in February, predicted savings of R$1.236 trillion (US$309 billion) in a decade, but it did not include an increase in revenue.

The first version of the report had reduced the savings to R$1.13 trillion (US$282 billion) with the reallocation of Social Security of R$214 billion (US$53.5 billion) from the National Bank for Economic and Social Development (BNDES). The rapporteur, however, dropped the idea after criticism from the economic team and Congress.

In terms of expenses, the new report projects savings of R$688 billion (US$172 billion) through the General Social Welfare System (RGPS), which pays private and state pensions; R$136 billion (US$34 billion) through the Federal Employees System; R$74 billion (US$18.5 billion) through the reduction of the income bracket to be granted salary bonuses and R$33 billion (US$8.25 billion) through measures to combat fraud in the Continuous Cash Benefits (BPC), also included in the report today.

In terms of collection, Moreira included in the bill the end of the exemption of rural exporters’ contributions to Social Security, which should reinforce the government’s cash by R$83.9 billion (US$21 billion) over a decade.

The increase from 15 to 20 percent of the rate of Social Contribution on Net Income (CSLL) charged to financial institutions is expected to generate R$53.5 billion (US$13.4 billion) in revenues.