The Brazilian Social Security: What Has Been Done and What Should Be Still Reformed?

Abstract

During the last years, the most important cause for the Social Security imbalance was the difference between revenues and expenditures related with retired people of the Public Administration. However, looking to the trends of the data, it is clear that the source of increase of total Social Security expenditures was the INSS, which increased from 2.5% of GDP in 1988 - when the then "New Constitution" was approved - to almost 5% of GDP in 1994 - when the Real Plan was launched - and an estimated 7.3% of GDP in 2004. The reasons for this phenomena were associated to the retirement rules, the impact of the real increases of minimum wage and the low growth of the economy. To change this trend requires changing the Constitution, with emphasis to the necessity of: a) define a minimum age to retirement; b) review the rule favorable to women; and c) eliminate the linkage between the mimimum wage and the Social Security floor. The paper presents a diagnosis of the Social Security imbalances in Brazil, suggests a set of proposals to attack the problem and estimates the evolution of the INSS expenditures under different circumstances.

Keywords: Public Finances, Social Security

JEL Classification: E62, H55