Brazilian Government Studies Project to Reduce Salary of Public Employees

RIO DE JANEIRO, BRAZIL – At the same time as it announces next year’s Budget, the government is looking for alternatives to make the 2021 Budget viable, as there is concern about exceeding the spending limit and increased pressure by the growth of compulsory spending. Technicians from the economic team stated that a set of measures is being analyzed in order to make room in the public accounts.

Among the actions that are being studied by the team of the Minister of Economy, Paulo Guedes, is the sending of a proposal to amend the Constitution (PEC) to Congress that provides a trigger to allow the reduction of working hours and salaries of employees. It will be a legal countermeasure to the Federal Supreme Court (STF) decision where the majority of justices considered unconstitutional, an identical provision contained in a new tax law.

Change in “Sistema S”

“Sistema S” is the name by which are known the nine institutions supporting employment and professional categories, established by the Brazilian Constitution.

The measure may free the Federal Government of expenses of R$4.3 billion (US$1.1 billion). APEX (budget of R$761 million), and ABDI (budget of R$82.2 million) already receive a good part of their resources from the S System and only a complement from the Treasury.

The measures are a complement to other initiatives under study, that can contribute more quickly to rebuilding revenues in 2020.

On the revenue side, Paulo Guedes has already pressured state-owned banks to anticipate the payment of dividends to the federal government. Together, BNDES, Caixa Econômica Federal, Banco do Brasil, Banco do Nordeste, and Banco da Amazônia will generate a gain between R$12 billion and R$13 billion.

The economic team is still evaluating the legal instrument that will allow the transfer of state-owned EMBRAPA, EMBRATUR, and INPI autarchies to the S System. According to technicians, the alternative will necessarily have to be approved by Congress, which is no expected to be a quick process.

The companies that comprose the S System (Sesi, Senai, Sesc, Sebrae and their confederations) have private management, their resources are contributions from companies’ payroll taxes, so they are not classified as expenses in the federal government budget.

Last year, the S system received R$17 billion. The tax rates vary between 0.2% and 2.5%, depending on the sector (industry, commerce, agriculture, transport, micro, and small companies).

The focus of the economic team is to reduce mandatory government spending and free up more space in the budget for spending that the government can decide, essentially investments. That’s what Guedes called “breaking the floor” in the Budget, instead of “piercing” the spending ceiling.