New measures for unemployment insurance and pensions for poor elders and disabled people wil be analyzed by lawmakers amid fiscal adjustments
25/07/2024
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Marcos Mendes — Foto: Gesival Nogueira/Valor
The Lula administration is considering changes to the criteria for granting the Continuous Cash Benefit (BPC, a pension for impoverished elders and disabled people) and altering unemployment insurance rules as part of another effort to reduce mandatory expenses and ensure they fit within the limits of the new fiscal framework.
These would be additional measures in the cost-cutting agenda, not included in the R$25.9 billion already announced for 2025 by Finance Minister Fernando Haddad. Both measures would require changes in the law but are being considered for submission to Congress by the end of this year.
According to two sources, the studies have already been requested and are underway. However, the proposals still need to be drafted and will undergo political scrutiny by President Lula at the “appropriate time.” A source from the economic team assured that the topic is not taboo within the government and will be addressed.
BPC is a social benefit amounting to one minimum wage paid monthly to people with disabilities and impoverished elderly individuals. To qualify, a person must have a per capita household income equal to or less than a quarter of the minimum wage. However, a 2021 law eased this criterion, allowing deductions for health-related expenses and granting the benefit to families with incomes up to half the minimum wage in specific cases.
Additionally, a 2021 ordinance changed the procedure for granting BPC to people with disabilities. The so-called “medium standard for social evaluation” was adopted, replacing the individual social evaluation in cases where the medical examination had already been performed and long-term impediment was confirmed. The measure was intended at the time to reduce the waiting delays.
The government assesses that these measures, even with subsequent changes, have helped expedite granting benefits in recent years, especially those granted judicially, due to ambiguous interpretations of the law.
As of June this year, 6 million people were receiving BPC. Ten years ago, in the same month, that number was 4 million. In 2021, it was 4.7 million. Data also shows that until 2022, the growth in the number of beneficiaries ranged between 1% and 5%. Now, it is in double digits, driven by the increase in BPC for people with disabilities and elderly individuals over 65 years old.
In the case of unemployment insurance, the economic team believes the program, as currently designed, is procyclical and needs changes. Currently, to receive the money, a worker must have been employed for at least 12 months in the 18 months prior to dismissal for the first application. The period drops to 9 from 12 months for the second application and then to 6 months.
The economic team advocates for standardizing these rules and making the program less procyclical. According to a source, “this is a good time” to make the changes, as the country is experiencing a “good employment situation.”
Bruno Ottoni, a labor market specialist at the Getulio Vargas Foundation (FGV), agrees that the current unemployment insurance format is procyclical. According to him, in most other countries, insurance is counter-cyclical, meaning that when the economy worsens and unemployment rises, spending on unemployment insurance increases.
In January and February this year, the government spent 29.75% more than in the same period last year on unemployment insurance, despite a heated labor market. A projection made on May 13 by the Ministry of Labor and Employment shows that spending on the policy would continue to rise in the coming years, costing R$51.6 billion in 2024 and reaching R$64.6 billion in 2027. Therefore, according to Mr. Ottoni, it makes sense for the government to seek to stabilize this expense over a ten-year period, for example, to fit within the new fiscal rules.
Changes to BPC and unemployment insurance are also being studied as an alternative to disconnecting these expenses from the minimum wage appreciation policy, a proposal raised by Planning and Budget Minister Simone Tebet but publicly dismissed by President Lula. “To maintain the link to the minimum wage, I need to improve social policies,” said a source.
Changes in the association of health and education floors to revenue growth would also not be adopted until 2026, as there is an assessment that the political cost of altering the growth rate is high. The economic team’s focus is on a thorough review of pension and social benefits and changes to the benefit for fishermen and agricultural insurance programs, measures included in the R$25.9 billion savings announced by Mr. Haddad for 2025.
In the case of the salary bonus, another policy contested by experts and attached to minimum wage growth, sources said that it would require a Constitution amendment, which tends to be difficult to pass by Congress.
Marcos Mendes, a doctor in economics and an associate researcher at business school Insper, believes there is room to change both the BPC and unemployment insurance. However, the researcher advocates for stricter changes than those being considered by the government and argues that it doesn’t make sense to equate the BPC amount to the minimum wage.
“The BPC is a benefit that a person receives without having contributed before. Therefore, it cannot be equated to another benefit paid to those who have contributed,” said Mr. Mendes. “Today this happens because the social security contributor retires at 65, and the BPC beneficiary also receives as of 65. It would be correct to return the BPC age to 70, as it was initially,” the economist said. He also argues for more selective criteria in defining disability and a “significant effort” to prevent fraud.
In the case of unemployment insurance, the economist said that it is necessary to redesign the three instruments to protect the worker who loses their job: unemployment insurance, the Workers’ Severance Fund (FGTS), and the contract termination fine paid to the employee fired without cause. “It would be necessary to redesign this protection to reduce costs for the government, employers, and employees, as there are negative fiscal and incentive effects for formalizing the workforce and job retention,” he said.
If confirmed, the change in unemployment insurance would not be the first time a government has altered the rules to restrict access and thus reduce expenses. At the end of 2014, then-president Dilma Rousseff issued a provisional presidential decree, signed into law in 2015, adjusting the criteria for granting unemployment insurance.
*Por Jéssica Sant’Ana, Guilherme Pimenta — Brasília
Source: Valor International