Brazil military austerity disappoints as extra pay eats up pension savings

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BRASILIA (Reuters) - Brazil’s military would average just 1 billion reais ($265 million) in net savings per year over the next decade under an austerity proposal from the Economy Ministry unveiled on Wednesday, with higher pay consuming most pension savings.

The bill is the final piece of a social security overhaul proposed by President Jair Bolsonaro, a former army captain, aimed at saving over 1 trillion reais in a decade.

Lawmakers have said they could not debate his pension bill, first presented a month ago, without details of his plans for the armed forces — and even Bolsonaro’s allies quickly questioned whether the military personnel were giving up enough.

The Economy Ministry’s proposal pointed to net savings of 10.4 billion reais over 10 years. That would result from 97.3 billion reais in savings on military pensions, partially offset by 86.9 billion reais in extra public spending on military pay.

Brazil’s currency, the real, reduced gains sharply as details of the proposal were made public. The benchmark Bovespa stock index extended losses to 1.6 percent - its biggest loss in two weeks.

“The bulk of this bearishness is the military proposal. Not the savings number per se, but the fact that the final proposal also included compensation, which is to say more spending,” said one fund manager in Sao Paulo. “It sends a bad signal for other government workers that will also want similar pay raises.”

Lawmaker Waldir Soares de Oliveira, leader of Bolsonaro’s party in the lower house of Congress, told journalists he thought it was not the moment to discuss higher military pay.

Government officials and military leaders defending the bill at a news conference said the salary hikes were making up for years of below-average adjustments to military compensation.

Reporting by Marcela Ayres and Ricardo Brito; Additional reporting and writing by Jamie McGeever; Editing by Brad Haynes and Leslie Adler