Administrative reform back on agenda after perks get suspended

Many of these indemnities, some not provided for by law, have been used to pay compensation above the constitutional cap of R$46,366.19. Administrative reform is considered an important measure to curb “supersalaries” and increase public sector efficiency.

The implicit message of the ruling is that if Congress does not decide on the issue, the Supreme Court will, Paulo told Valor. “Then it makes no sense to complain that the Supreme Court is encroaching on legislative powers,” he said. According to the congressman, the Legislature will be forced to address civil service pay twice this year: first, to comply with Dino’s injunction; then, to review possible vetoes by President Lula (Workers’ Party, PT) to bills approved this month granting raises to legislative staff and establishing a compensatory leave that allows employees to exceed the civil service pay cap.

Lula is considering vetoing the new perks, according to sources. Ten civil society organizations sent a joint letter urging the president to block the compensatory leave for the Legislature and similar benefits approved last December for the Federal Court of Accounts (TCU).

“My proposal largely contains what is in Justice Dino’s ruling,” Paulo said. “The definition of indemnity payments he calls for is basically the same as in my proposal.”

Politically, Dino’s decision “removed the biggest obstacle” in the administrative reform, the congressman said. Regulating payments above the salary cap had generated the strongest resistance in Congress. Now, that discussion has shifted to the Supreme Court.

With that, the remaining, less controversial aspects of the reform have a better chance of advancing, he said. The proposal reduces the number of civil service career tracks, sets a minimum of 20 pay progression levels, and establishes that entry-level pay in a career cannot exceed 50% of the top salary. For states and municipalities, it limits the growth of spending by the Legislative and Judicial branches and autonomous bodies (Public Prosecutor’s Office, Courts of Accounts and Public Defender’s Office). The mechanism would be inspired by the federal fiscal framework. The reform reported by Paulo includes 70 measures distributed across a proposed constitutional amendment (PEC), a complementary bill and an ordinary bill.

Carlos Ari Sundfeld, a professor at the São Paulo Law School of the Getulio Vargas Foundation (FGV) and an expert on the subject, takes a different view. He argues that Dino’s decision addresses only one point of Pedro Paulo’s proposal—indemnities—and does not affect the rest of what he calls an “immense” package.

Regarding indemnities, the issue’s history in Congress makes him pessimistic. Bills already under consideration list which indemnities should be paid. They are criticized for effectively legitimizing many of them. In complying with Dino’s order and drafting a general law on indemnities, Congress could follow the same path. “The progress so far has not been positive,” he said. “We have not managed to produce a list that reduces indemnities, which may suggest this is not a very good approach.”

Sundfeld and Paulo agree it is important to see what the full bench of the Supreme Court decides regarding Dino’s ruling. A session is scheduled for February 25.

“They could, for example, adjust or extend the 60-day deadline,” the congressman said. The deadline applies not only to legislative regulation of indemnities but also to all bodies that pay them, which must disclose the type of payment and its recipients. The data have “nuclear war potential,” he said.

Sundfeld says it is difficult to predict what other justices will decide. They could, for example, rule that the Judiciary should be excluded from the new rules. The São Paulo Court of Justice has already filed an appeal in that direction, he noted.

“We will keep pushing,” Guilherme Cezar Coelho, founder of Republica.org, told Valor regarding administrative reform. The organization is one of the signatories of the letter to Lula requesting a veto of the new perks.

In partnership with the Movimento Pessoas à Frente, Republica.org released a study last November pointing to Brazil as a global champion of supersalaries. It shows that 0.6% of civil servants earn above the salary cap. The phenomenon is concentrated in the Judiciary, where 93% of judges and 91.5% of members of the Public Prosecutor’s Office exceeded the limit in 2023, at a cost of R$11.1 billion. By contrast, 70% of public servants earn up to R$5,000 per month.

“Legal careers concentrate supersalaries but deliver poor public services,” Coelho said. He cited a survey by think tank Instituto Sou da Paz, released last October, showing that only 36% of homicides in the country result in charges filed by prosecutors. “Two-thirds of homicides, of murders, lead nowhere,” he stressed. In Rio de Janeiro, the situation is even worse, he added. Of the 20 highest salaries paid in the country, 15 are in the building of that state’s Public Prosecutor’s Office. There, only 23% of homicides are brought before the courts.

The figures reflect an inefficient Judiciary system, he argued. Brazil scores 40 points on the World Bank’s Regulatory Quality Index, compared with 100 for Australia and Singapore, 77 for Chile and 91 for the United States. On another measure, Brazil scores 35 out of 100 on the Legal Certainty Index (Insejur).

“These two indicators, regulatory quality and legal certainty, are the responsibility of legal careers in Brazil,” he said. “Brazil is a bad place to do business because of these careers, which benefit from public service; supersalaries generate inefficiency.”

Higher wages can boost productivity when tied to measurable results or when they attract productive workers, explained Sergio Firpo, coordinator of the Insper Observatory of Public Spending Quality. “If you increase wages without either condition, if you raise pay for those already working, it is neither a recruitment effect nor linked to productivity gains,” he said. “It is just more money for those already receiving a salary.”

Civil service exams are highly competitive and bring productive individuals into public service, he noted. What is missing is linking pay to performance, as proposed by Paulo.

However, the proposal lacks support from the Ministry of Management and Innovation in Public Services. “The PEC is huge; they put a lot of things into the Constitution,” a government official told Valor. “It makes no sense to include controversial points.”

The government believes the chances of the proposal advancing are slim. Therefore, it intends to include in another bill, dealing with career restructuring, a provision establishing new criteria for career progression. This is one of the aspects of Pedro Paulo’s proposal that most interests the executive branch.

Administrative reform championed by Management Minister Esther Dweck is already under way and flying below the radar. Without proposing constitutional changes or new laws, the ministry has adopted more than 50 measures, such as lowering entry-level pay, extending career paths and implementing a more robust evaluation system that has already led to dismissals. “No constitutional amendment is needed; what is needed is action,” the minister often says.

“My criticism of the government is that it does not take a political decision on reform,” Paulo said. It seeks to avoid friction with civil service unions, part of its electoral base. “By not carrying out the reform, the government misses the opportunity to reach voters the president struggles to attract,” he said. “Imagine Lula being able to say he carried out two reforms in four years, tax and administrative.”

As previously reported by Valor, in the view of Arminio Fraga, founding partner of Gávea Investimentos and former Central Bank president, administrative reform would not have an immediate impact on public accounts. It could reduce spending by about 2 to 3 percentage points of GDP over five to ten years, provided it includes states and municipalities.

“If we look at recent years, personnel spending has been relatively controlled,” said Rafaela Vitoria, chief economist at Banco Inter. The expense stands at around 3% of GDP. “We were concerned when the Lula administration announced raises and new civil service exams.” However, spending remains at the same level. In her view, reducing this expenditure is not urgent. Instead, reform should focus on improving productivity and tightening rules on salary add-ons.

The spending item that most demands attention is social security. On this front, she notes that much of the civil service no longer retires with full pay, as in the past, but under general pension rules. Progress is still needed on pensions for military personnel and other categories left out of previous reforms.

“Administrative reform has a growing fiscal impact over time,” Paulo said. Gains would stem from disciplining supersalaries, defining spending limits by branch and constitutionalizing spending reviews. However, fiscal gains are not the proposal’s main focus, he stressed.

“When we set spending growth rules by branch, it will become a surplus for the executive, which will have more resources to invest in education and health instead of handing them over to grant raises to the judiciary, increase perks, or boost office budgets for lawmakers,” he said. “It is not necessarily an accounting surplus.”

The negative reaction to the approval of salary benefits for the Legislature “spooked politicians somewhat” and may change perceptions about administrative reform, the congressman said. “What they thought would be political wear and tear may become an asset,” he said. “Approving a measure that disciplines spending has popular appeal.”