He PIT-CNT presented a total of 430,023 signatures in the Parliament to materialize your plebiscite against social security reform, which will be voted together with the elections October nationals.
The proposal, which generated strong criticism from the ruling party, states that the minimum retirement age begins to be 60 years old, while the pension assets would become tied to the minimum salary national.
Another of the axes of the initiative is the elimination of individual savings, the AFAP and profit in the pension system. Taking these guidelines into account, what would be the impact of an eventual approval of the plebiscite for the Uruguayan economy?
Increase in public spending and tax increases
The most palpable effect of the possible constitutional reform would be a strong increase in public spending, instantly, due to the anchoring of the minimum asset to the national minimum wage.
To meet this cost, “more than 1.1 billion extra dollars per year would be needed,” explained the director of the Center for Studies of Economic and Social Reality (Ceres), Ignacio Munyo, estimating the calculation at 1.5% of GDP.
Meanwhile, the 5-year reduction in the retirement age would represent an increase of nearly 3,000 million dollars, including the BPS, as well as the Military, Police and Parastatal funds, equivalent to 4% of GDP.
At the same time, there is consensus among economists that the modification would mean an increase in the Business Activity Income Tax. (IRAE), he Wealth tax and the highest bands of the Personal Income Tax (IRPF), which would imply “serious damage to private investment and the future growth of the economy.”
Uruguay could lose investment grade
If Uruguayans validate the changes in popular consultation, it could affect the international vision of the legal security and clarity in the rules of the country’s game, denting international trust and affecting the investments.
“Uruguay It is a country that is characterized by providing legal certainty and thus spending on retirements and pensions it’s going to shoot “We run the risk of losing the investment grade,” said the Minister of Labor and Social Security, Pablo Mieres.
Possibility of trials against the State
This scenario would trigger legal uncertainty “not only because of the confiscation of the savings managed by the AFAPs, but because it also calls into question the 1996 reform,” warned the Exante partner. Pablo Rosselli.
Something similar was expressed by Munyo, who added that “it is feasible that members will file lawsuits for the confiscation of savings managed by the AFAP,” estimated at 22 billion dollars. In turn, he anticipated that “the AFAP could do the same, claiming lost profits for the commissions provided until the members retire.”
The director of Ceres considered that, if approved, the union’s initiative would imply a reduction in private savings, due to the ban. “People with higher incomes will look for alternatives abroad, as international evidence shows,” she said.
Munyo indicated that this would have a regressive effect in the distribution of income. “Higher-income contributors will have incentives to reduce their contributions and benefit disproportionately from the minimum benefits of the new system,” she said.
Along these lines, Rosselli stated that “the indexing of minimum passivities to the National Minimum Wage will end up encouraging future governments to delay the minimum wage, as happened until 2005.” In parallel, he argued that “it is the people with better careers and higher incomes who can accumulate 30 years of service at the age of 60, those who are younger should work beyond that age.”
Source: Ambito
