How much would the changes to the social security reform project cost the State?

When the original text of the reform reached the Senate, the numbers were constantly repeated by the government’s economic team and the drafters of the project, with Rodolfo Saldaín to the head. In this way, something was clear in the proposal promoted by the president Luis Lacalle Pou: if approved, the deficit of the pension system would stabilize at 1.7% or 1.8%, instead of growing until it reaches close to 5 points.

This was explained by Saldain in his presentation before the Special Commission that took the first step towards approval. According to official estimates, the projected result for the Social Welfare Bank (BPS) would grow from 0.7% of the Gross Domestic Product (GDP) in 2025 to 1.7% two decades later, and would reach 2.9% in 2060 without the reform. On the other hand, if the government project is approved, in 2025 the deficit would be 0.6%, it would rise one tenth by 2030 and it would fall to 0.4% by 2040. In the same way, the forecast is that it will remain below the 1% of GDP up to 2060, and it stands at 1.3% in 2070, as far as the projection indicated, for the same period, a deficit of 3.6% without the reform.

Also, with regard to the BPS expenses for retirement paymentsthe projection is that without the changes in the pension system they will grow from 8.4% in 2025 to 10% in 2055. If the new retirement rules are approved, the authorities predict that spending will remain stable around 8% in the coming decades.

Now, with the changes demanded by CA and proposed by the Colorado Party, these estimates are modified.

How would they affect the changes of the lobbyists?

When the agreement between the leader of CA, Guido Manini Riosand Lacalle Pou, the numbers resulting from the contemplated modifications made several legislators rethink the operability of the reform, as well as the impossibility of bringing their own proposals for the text that, in the debate in the Senate, did not have modifications.

According to the Colorado representative conrado rodriguez, the economic impact of the reform that was being considered around the demands of the lobbyists was around between 280 and 250 million dollars, at first; and then they settled into a broader but just as inaccurate range, which was going from 50 million to 300 million dollarsbased on the formulas that circulated in the last hours.

With these numbers, there was no doubt that the system would be disrupted and that the sustainability sought would not be such.

However, Saldain explained that the acceptance of the CA changes occurred in a scenario in which tThere is still an improvement in the sustainability of the current regimealthough there is a detriment with respect to the original projections.

In this sense, the editor of the pension reform explained that, on the one hand, the unfolding of the issue of foreign investment by the Pension Savings Fund Administrators (AFAP) —to be treated as a separate project, with longer discussion times— does not affect the original economic estimates, while for the elaboration of the project possible future returns were not taken into account, but historical returns since 2004 —something that did not would change in the medium term.

On the other hand, meanwhile, with the change in the formula for calculating the replacement rate for basic retirement salariesYes, there is an impact, as explained by the lawyer in dialogue with the En Perspectiva program. In this regard, he explained that although the improvement compared to the current situation is maintained, contemplating the average of the best 20 years —instead of 25, as established in the original text— will have a long-term impact of 0.3% of GDP, that is, a greater disbursement by the BPS, but that would not significantly affect its sustainability prospects. Although it would have a visible positive effect on the monthly retirements of people with average passive income.

And what will happen with the changes in the Colorado Party?

The Colorados themselves were the ones in charge of estimating the costs of their proposals, to avoid generating expectations around issues that would later be impossible to carry out in fiscal terms.

In this way, the three changes brought to Lacalle Pou and accepted by him will imply a cost close to 100 million dollarsas reported by the industry leader citizens and former minister of Environment, Adrian Peña, after his meeting with the president.

These changes include: modifying the minimum number of years worked in order to retire; the correction of an error in the design of the project to avoid an abrupt and unjustified jump in the retirements of people born between 1972 and 1973 —which generated a situation of “new fifties”—; and the reduction of Social Security Assistance Tax (IASS).

This last point was also introduced as one of the modifications of the Cabildo Abierto.

Can IASS be removed?

Although it has not yet been defined what IASS percentage reduction will be contemplated in the reform, as well as the deadlines for its application, this tax had already been put on the table for discussion by the red deputy Gustavo Zubia, who demanded his repeal in exchange for a positive vote on the reform.

However, such an initiative would go against the project that seeks the sustainability of the pension system, while the total collection of this tax is directed to the BPS; so its elimination would imply the cut resources for the organism. In short, nonsense.

It remains to be seen what deduction regime the government will implement to satisfy its coalition partners. Meanwhile, it should be remembered that this tax was recently reduced, which implied a $30 million tax waiver for the state.