Capping Pension Payments

Mar 1, 2003

Social Security expenses now exceed revenues by more than $24 billion. The Lula Administration must find a way to stop the excess spending in its federal budget.

In his first speech as Brazil's finance minister, Antônio Palocci stated that, "We cannot live any longer with traps in the budget that must be dismantled every year. It is our goal to have a definitive adjustment of public accounts."There is no trap bigger or more dangerous than the yawning deficit in the state-run social security system. Last year, the gap between revenues and expenditures reached a record R$71.4 billion ($24.4 billion), equivalent to 5.5% of GDP. The deficit is so large and growing so quickly that it is distorting the entire economy. It is much larger than the 4.25% primary budget surplus the government is aiming for in 2003. In comparison, the war on hunger will cost R$2.5 billion this year. The education budget is onefourth the size of Brazil's social security deficit. It is easy to see how dealing with the social security system could transform the structure...

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