UPDATE 2-Brazil govt presents public sector reform bill, gives president sweeping powers

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BRASILIA, Sept 3 (Reuters) - Brazil’s government on Thursday presented to congress a constitutional reform bill aimed at simplifying and reducing the cost of its public sector, which it argues is too bloated and a major reason why the public finances are in such poor shape.

According to an economy ministry presentation, the bill will make it easier to fire civil servants and cuts their benefits, and gives the president sweeping powers to eliminate public sector jobs and bodies without congressional approval.

Caio Mario Paes de Andrade, special secretary for deregulation at the economy ministry, said it marks a “profound transformation of the state” and will improve the quality and efficiency of the public sector machine.

This constitutional amendment is the first of three phases that will overhaul Brazil’s public sector, ministry officials said. Estimates on the fiscal impact on the public purse will be included in the second and third phases when guidelines on salaries are presented, they said.

Spending on public sector employees last year was 13.7% of domestic product, up from around 12% in 2012, Gleisson Rubin, deputy special secretary for deregulation, said in an a virtual press conference.

Current public sector workers will not see their terms or salaries changed. But the benefits of future employees such as retroactive pay rises, more than 30 days vacation per year, and extra leave for length of service, will be cut.

As was the case with last year’s landmark social security reform, military personnel are not included in this reform proposal. Lawmakers and magistrates will also be exempt, officials said.

According to the proposals, the president will be granted sweeping powers to cut jobs, eliminate public bodies, and reorganize public sector departments without congressional approval as long spending does not rise.

Brazil is on course to post a record budget deficit this year due to the emergency spending and lost tax revenue resulting from the COVID-19 pandemic, which has also pushed total government debt to a record high.

This year will be the government’s seventh in a row of budget deficits. It may still be in deficit by 2027, Treasury Secretary Bruno Funchal said this week. (Reporting by Jamie McGeever and Marcela Ayres, writing by Stephen Eisenhammer Editing by Chizu Nomiyama and Marguerita Choy)