Brazil to examine changes to pension benefit calculations in spending review, minister says

63rd Summit of Heads of State of MERCOSUR and Associated States in Rio de Janeiro

By Marcela Ayres and Bernardo Caram

BRASILIA (Reuters) - Brazil's planning ministry is preparing to review government spending again, including changes in the calculation of pension and labor benefits, but it is not planning any immediate implementation, the minister told Reuters.

The reviews will be done by December and any consequent measures would not be implemented until 2025 or 2026, Planning and Budget Minister Simone Tebet said.

"As long as there is fat to cut, we don't need to delve into more thorny, delicate issues, which would need worse fiscal and budgetary conditions and the involvement of the political class," she said in an interview on Tuesday.

The review is aimed at improving the quality of public spending, according to Tebet, who sees new fiscal rules introduced in 2023 and economic growth stabilizing Brazil's public debt.

Government discretionary spending will be slashed to zero by 2027, Tebet said, given the ongoing trend of mandatory expenses encroaching on the allocation of general expenditure resources.

New fiscal rules passed by President Luiz Inacio Lula da Silva restrain the expansion of annual spending, albeit more loosely than the previous spending cap that was in place during Brazil's two previous administrations.

"I have to prepare a list of solutions, even if they stay in a drawer, for when they are needed," she said, adding that political circumstances will determine whether they get used in early 2025, late 2025 or only in 2026.

Following recent signals from top government officials on the need to curb pension spending, which triggered a strong backlash from Lula's Workers Party, Tebet said the ministry is assessing the unlinking of pensions and labor benefits from a policy of real increases to the minimum wage.

However, she stressed possible solutions could maintain real increases through a different formula and be applied to certain benefits individually.

The minister said that the government does not operate with a limit on the not yet defined extraordinary expenses it will incur this year due to historic flooding in the southern state of Rio Grande do Sul. But she said the money would have no effect on government debt.

(Reporting by Marcela Ayres; Editing by Jamie Freed)