Legal Dispute Over Pension Tax Clouds Brazil Fiscal Plan
By ADRIANA ARAI
Dow Jones Newswires
BRASILIA -- A court dispute is threatening to wipe out one of Brazil's
most important fiscal-squeeze measures, designed to halt the country's
widening pension-system deficit by hiking social security taxes charged
against federal civil servants and retirees.
Approved by Congress last January, the new taxes are expected to
generate revenue of 2.8 billion reals ($1=BRR1.6490) this year alone,
BRR4.3 billion in 2000, and BRR4.5 billion in 2001 - provided it isn't
ultimately defeated in court.
The measure is one piece of a broad fiscal austerity plan designed to
produce a BRR30 billion primary budget surplus this year. The surplus
goal is one of the cornerstones of a $41.5 billion rescue package
assembled by international lenders last November.
However, civil servants all over the nation have filed lawsuits against
the new tax bite in their paychecks, in force as of May. So far, 44% of
all the 1.1 million federal civil servants have obtained favorable
preliminary court rulings, according to the Administration Department of
the Budget Ministry.
Analysts are wary of legal wranglings, as the measure is hailed as
Brazil's only tool to stop a yearly gap in the public sector's pension
system from strangling efforts to put its fiscal house in order.
"There's no inflation to erode nominal servants' wages as there used to
be, the government can't cut paychecks, and the government can't kill
civil servants to stop payments. Levying the tax is the only way out,"
said Brasilia-based private consultant Raul Velloso, a former government
advisor.
He added the unpopular measure serves as an example for state and local
governments, which suffer from the same fiscal disease.
The social security deficit on the three levels of government stood at
BRR32 billion in 1997, according to the latest official data available.
Govt Seeks To Overturn Suits; Outcome Uncertain
The court decisions - including one by a judge with the Federal Supreme
Court - were based on the argument that the tax rate is so high that it
can it could be termed a confiscation. The new social security tax rates
start at 11%, with additional tax rates charged on top of wages
exceeding BRR1,200 per month.
The government appealed the Supreme Court decision and is doing the same
with all preliminary injunctions throughout the country. It says the new
tax is "fair."
"It's not as much as (the civil servants) are saying," Federal Human
Resources Undersecretary Antonio Casella told Dow Jones Newswires. "The
government did its calculations and found out that what civil servants
are contributing (into the pension system) is far from being enough to
cover pension payments."
"The confiscation argument can't prevail because they're just paying for
what they'll benefit from in the future, like employees in the private
sector do," added Casella.
The question, however, has an unpredictable outcome, a source with the
Supreme Court said. The 14 lawsuits that landed on the Federal Supreme
Court's table - filed by employees retired from the institution - had
three different outcomes: one got a favorable preliminary decision, one
was rejected, and the remaining cases were sent to other federal courts.
Now the government is anxiously awaiting the Supreme Court's decision on
its appeal. If the judge changes his mind and overturns the injunction
challenging the new pension tax, the federal government will file a
lawsuit channeling all civil servants' suits to the Supreme Court,
hoping to overturn them all at once.
If the judge doesn't change his mind, then the Supreme Court will
convene a plenum session in which at least six of its 11 judges make a
final decision.
The government will be able to assess the hole in its accounts at the
end of the day Wednesday, when May's federal payroll will be closed.
-By Adriana Arai; 55-61 321-1224 or 965-6883;
aarai@ap.org |
