Economic Overview and Social Security Reform
Economic Overview and Social Security Reform
V DIPLOMATIC BRIEFING / CNI June 2016
Flávio Castelo Branco Economic Policy - CNI
Economic Overview
The Brazilian current situation (first half 2016)
DEEP RECESSION
HOUSHOLD CONSUMPTION CONTRACTION
RISING UNEMPLOYMENT AND INCOME LOSS
PRODUCTION DROP IN ALMOST ALL MANUFACTIRING SETORS
3
The Brazilian current situation (first half 2016)
LOW CONFIDENCE LEVELS (FOR BOTH BUSINESSES AND CONSUMERS)
SLOW DROP IN INFLATION
HIGH FISCAL DEFICITS
EXCHANGE RATE VOLATILITY
INCREASING EXPORTS
SIGNIFICANT ADJUSTMENT IN CURRENT ACCOUNT
4
The Brazilian current situation Have we reached rock bottom?
5
Have we reached rock bottom? Manufacturing business confidence index rose in May
Industry production with two rises in a row 110
70 65
105
Confidence 60 100 55
53,3
95
50
49,9 45
41,3
90
40
84,2
Lack of confidence
85
37,5
35
35,0 30 May-12
Nov-12
May-13
Nov-13
May-14
Nov-14
May-15
Nov-15
36,8 May-16
Source: CNI * The ICEI vary in the 0-100 interval. Figures above 50 points indicate that entrepreneurs are confident.
80 Apr-10 Dec-10 Aug-11 Apr-12 Dec-12 Aug-13 Apr-14 Dec-14 Aug-15 Apr-16 Source: IBGE
6
Have we reached rock bottom? Less pessimism in relation to future demand
60
Exports expectation index on the positive side since the end of last year
55
Growth expectation 55,2
53,5
51,7
55
Growth expectation 50
53,7
50,7
48,9
48,4
50
Decline expectation 45
45,9
47,8
45
41,8
Decline expectation 40
40 May-14
Aug-14
Nov-14
Feb-15
May-15
Aug-15
Nov-15
Feb-16
May-16
Source: CNI *Indicators range from 0 to 100. Figures above 50 points indicate an expected increase in demand in the next six months.
May-14
Aug-14
Nov-14
Feb-15
May-15
Aug-15
Nov-15
Feb-16
May-16
Source: CNI * Indicators range from 0 to 100. Figures above 50 points indicate an expected increase in exported volumes in the next six months.
7
Have we reached rock bottom? Final goods inventories adjustment
Stabilization of industry investment intention index 65
56
60,8
Inventories above planned levels 60 54
53,1 55 52
52,2
51,2
50
50,5 50 45
42,4
49,2
39,4 49,1
48
Inventories under planned levels
40
39,2 46 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16
Source: CNI *Indicators range from 0 to 100. Figures above 50 points indicate that actual inventory is above planned levels.
35 Nov-13
Mar-14
Jul-14
Nov-14
Mar-15
Jul-15
Nov-15
Mar-16
Source: CNI *Indicators range from 0 to 100. The higher the index, the more likely industry is to invest.
8
The Brazilian challenge Reduce public debt increasing and resume GDP growth 75,0
10,0
7,5
72,9
8,0
70,0 6,0
3,9
4,0
3,0
65,0
66,5
1,9
2,0
0,1 60,0
0,0 -2,0
55,0
57,2 -3,1 -3,8
53,8 50,0
51,8
51,7
51,3
GDP Growth
-4,0 -6,0
Gross debt-to-GDP ratio
9
Social Security Reform
Why the social security reform is important?
Social security is the main reason for high public deficit Brazilian system is not isonomic or equal among social groups Present Brazilian system was designed for last century Similarity with world standards (Most countries are promoting Social Security reforms)
11
The Brazilian system
We have three different types of social security regimes • Civil servants and military regime of federal government (“Regime proprio” / RPPS)
•
Private sector workers regime (“Regime Geral” / RGPS - INSS)
• State and local government regimes
Each regime has its own specific rules and legislation (some of them are constitution rules)
12
Some numbers about social security system Social security deficit (considering the broad system) topped R$ 212,5 billion in 2015 2006 forecasts are worse: deficit may reach R$ 227 billion Total outlays with benefits accounted for R$ 664 billion in 2015 (11,2% of GDP) •
Federal government: 9,1% GDP (both systems)
•
State and municipalities: 2,1% GDP
The share of elderly of population (above 65 years) is only 8,2% in Brazil; and it may reach 13,4% in 2030 13
The time of retirement issue The average age of retirement in 2015 was 58 years in Brazil (It is 54,7 years in the case of “contributive period of work time”)
It is far less than the mean age of retirement around the world (around 65 to 67 years / OECD average is 64 years)
Period of retirement almost equals working period •
Men: 2/3 of contributive time
•
Women: almost the same time
14
Problems of Brazilian Social Security System Demography dynamics: Brazilian population is getting old Social net protection system: it mixes social security with social programs Unfairness: the Brazilian system is not equal among different groups and has many special rules Pension rules: Brazil has very generous rules
15
Society perception of social security (CNI/Ibope survey) Knowledge about social security problems are gradually taking place in society Ample majority agrees that rules should be the same for all 60% favors higher age for retirement 75% do not support higher taxes in order to finance the system
16
CNI proposals to “Regime Geral” reform Adoption of minimum age criteria Isonomic rules for different social groups Gradual equalization of time requirements for both men and women Elimination of sector and other functional special rules (less time for benefit eligibility)
No use of minimum wage indexation for social security benefits Different values for social security and social programs benefits
17
Some basic points
Control of public deficit Long term equilibrium of the system Transition rules Communication strategy
18
www.cni.org.br
V DIPLOMATIC BRIEFING / CNI June 2016
Flávio Castelo Branco Economic Policy - CNI
Economic Overview
The Brazilian current situation (first half 2016)
DEEP RECESSION
HOUSHOLD CONSUMPTION CONTRACTION
RISING UNEMPLOYMENT AND INCOME LOSS
PRODUCTION DROP IN ALMOST ALL MANUFACTIRING SETORS
3
The Brazilian current situation (first half 2016)
LOW CONFIDENCE LEVELS (FOR BOTH BUSINESSES AND CONSUMERS)
SLOW DROP IN INFLATION
HIGH FISCAL DEFICITS
EXCHANGE RATE VOLATILITY
INCREASING EXPORTS
SIGNIFICANT ADJUSTMENT IN CURRENT ACCOUNT
4
The Brazilian current situation Have we reached rock bottom?
5
Have we reached rock bottom? Manufacturing business confidence index rose in May
Industry production with two rises in a row 110
70 65
105
Confidence 60 100 55
53,3
95
50
49,9 45
41,3
90
40
84,2
Lack of confidence
85
37,5
35
35,0 30 May-12
Nov-12
May-13
Nov-13
May-14
Nov-14
May-15
Nov-15
36,8 May-16
Source: CNI * The ICEI vary in the 0-100 interval. Figures above 50 points indicate that entrepreneurs are confident.
80 Apr-10 Dec-10 Aug-11 Apr-12 Dec-12 Aug-13 Apr-14 Dec-14 Aug-15 Apr-16 Source: IBGE
6
Have we reached rock bottom? Less pessimism in relation to future demand
60
Exports expectation index on the positive side since the end of last year
55
Growth expectation 55,2
53,5
51,7
55
Growth expectation 50
53,7
50,7
48,9
48,4
50
Decline expectation 45
45,9
47,8
45
41,8
Decline expectation 40
40 May-14
Aug-14
Nov-14
Feb-15
May-15
Aug-15
Nov-15
Feb-16
May-16
Source: CNI *Indicators range from 0 to 100. Figures above 50 points indicate an expected increase in demand in the next six months.
May-14
Aug-14
Nov-14
Feb-15
May-15
Aug-15
Nov-15
Feb-16
May-16
Source: CNI * Indicators range from 0 to 100. Figures above 50 points indicate an expected increase in exported volumes in the next six months.
7
Have we reached rock bottom? Final goods inventories adjustment
Stabilization of industry investment intention index 65
56
60,8
Inventories above planned levels 60 54
53,1 55 52
52,2
51,2
50
50,5 50 45
42,4
49,2
39,4 49,1
48
Inventories under planned levels
40
39,2 46 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16
Source: CNI *Indicators range from 0 to 100. Figures above 50 points indicate that actual inventory is above planned levels.
35 Nov-13
Mar-14
Jul-14
Nov-14
Mar-15
Jul-15
Nov-15
Mar-16
Source: CNI *Indicators range from 0 to 100. The higher the index, the more likely industry is to invest.
8
The Brazilian challenge Reduce public debt increasing and resume GDP growth 75,0
10,0
7,5
72,9
8,0
70,0 6,0
3,9
4,0
3,0
65,0
66,5
1,9
2,0
0,1 60,0
0,0 -2,0
55,0
57,2 -3,1 -3,8
53,8 50,0
51,8
51,7
51,3
GDP Growth
-4,0 -6,0
Gross debt-to-GDP ratio
9
Social Security Reform
Why the social security reform is important?
Social security is the main reason for high public deficit Brazilian system is not isonomic or equal among social groups Present Brazilian system was designed for last century Similarity with world standards (Most countries are promoting Social Security reforms)
11
The Brazilian system
We have three different types of social security regimes • Civil servants and military regime of federal government (“Regime proprio” / RPPS)
•
Private sector workers regime (“Regime Geral” / RGPS - INSS)
• State and local government regimes
Each regime has its own specific rules and legislation (some of them are constitution rules)
12
Some numbers about social security system Social security deficit (considering the broad system) topped R$ 212,5 billion in 2015 2006 forecasts are worse: deficit may reach R$ 227 billion Total outlays with benefits accounted for R$ 664 billion in 2015 (11,2% of GDP) •
Federal government: 9,1% GDP (both systems)
•
State and municipalities: 2,1% GDP
The share of elderly of population (above 65 years) is only 8,2% in Brazil; and it may reach 13,4% in 2030 13
The time of retirement issue The average age of retirement in 2015 was 58 years in Brazil (It is 54,7 years in the case of “contributive period of work time”)
It is far less than the mean age of retirement around the world (around 65 to 67 years / OECD average is 64 years)
Period of retirement almost equals working period •
Men: 2/3 of contributive time
•
Women: almost the same time
14
Problems of Brazilian Social Security System Demography dynamics: Brazilian population is getting old Social net protection system: it mixes social security with social programs Unfairness: the Brazilian system is not equal among different groups and has many special rules Pension rules: Brazil has very generous rules
15
Society perception of social security (CNI/Ibope survey) Knowledge about social security problems are gradually taking place in society Ample majority agrees that rules should be the same for all 60% favors higher age for retirement 75% do not support higher taxes in order to finance the system
16
CNI proposals to “Regime Geral” reform Adoption of minimum age criteria Isonomic rules for different social groups Gradual equalization of time requirements for both men and women Elimination of sector and other functional special rules (less time for benefit eligibility)
No use of minimum wage indexation for social security benefits Different values for social security and social programs benefits
17
Some basic points
Control of public deficit Long term equilibrium of the system Transition rules Communication strategy
18
www.cni.org.br
