Earlier today the government announced the November fiscal results for Brazil, which posted a BRL6.7bn deficit for the central government, significantly below the market consensus of a BRL1.3bn deficit. Year-to-date, the central government's deficit is BRL18.3bn, as expenditures increased 6.0% in real terms during the period, meanwhile revenues actually decreased 3.3% in real terms, and in a 12-month rolling sum, the primary result is a deficit of 0.1% of GDP. This is the worst result since the series began recording in 1997. The government announced measures to reduce some of the labor and social benefits, which expenditures were increased significantly in the past years. According to Barclays Research, the main changes are detailed below:
- Unemployment benefits: The government proposes to change the grace period for the first requirement of the benefit to 18 months from six months of employment, and to 12 months from six months for the second requirement, while keeping at six months for the third requirement.
- Salary bonuses:The 14thmonthly salary that the government pays for those workers that receive up to two minimum wages will now have a grace period of six months (up from one month previous), and will be proportional to the period worked during the year.
- Death pensions:For the future benefits, now the government proposes to require 24 months of social contribution, with at least a two-year marriage in order for widow/widower to have access to the pension, with the exception of work accident or work-related diseases. In addition, to have access to the lifetime pension, the government sets a minimum age of 44 years-old for the partner, meanwhile beneficiaries younger than that should receive the benefit for a period between three to 15 years. Finally, the pension represents 50% of original benefit, plus a 10% addition for each dependent on the family.
Barclays Research also stated that the measures go beyond their preliminary estimates:
- The broader-than-expected changes are a welcome development amidst the negative fiscal results news. However, the change in the tax breaks and the increase in some taxes, which could account for 0.6% of GDP for the next year, have not yet been announced by the next Minister of Finance Joaquim Levy.
- This potential change would increase the market's confidence in how focused the government is to reach the 1.2% of GDP fiscal target for the next year – we continue to expect an improvement next year, but more contained than government's projection, as we forecast a 0.8% primary surplus, given the lack of support in the Congress for the government to increase new taxes (such as the one regarding financial transactions) and the sluggish growth outlook for the revenues side.
The material has been provided by InstaForex Company – www.instaforex.com