President declared in an interview that he cannot “penalize those who earn less”; government wants to correct value by up to 2.5% above inflation as part of cuts
The president (PT) said in June 2024 that it would not change the minimum wage adjustment calculation. The declaration was not fulfilled. On Wednesday (Nov 27), the Minister of Finance, Fernando Haddad, (National Consumer Price Index) accumulated in 12 months until November of the previous year.
Today, the minimum wage is indexed to GDP (Gross Domestic Product) growth.
The measure announced by Haddad is part of the government’s package to cut public spending.
“I guarantee that the minimum wage will not be changed while I am president of the Republic. When you increase the minimum wage, what does the law that regulates the increase in the minimum wage say? You always have to include inflationary replacement because it is to maintain purchasing power. And we give an average of GDP growth over the last 2 years. GDP growth is exactly for this, for you to distribute among the 200 million Brazilians. And I can’t penalize the person who earns less. I can’t penalize”declared Lula in an interview with the news portal UOL.
EXEMPTION FROM IR
In the same interview, Lula stated that he had a “historic commitment” to exempt those earning up to R$5,000 from income tax.
“We are exempt from paying income tax up to R$2,640 and I will reach R$5,000. It is important to remember that I have a historic commitment, by the end of my term I will earn up to R$5,000 without paying income tax”declared the president.
The measure was also announced by Haddad as part of the expenditure review. It should stay, however, until 2025.
The measure was received with trepidation in Congress.
The economic team wants to compensate for the income tax exemption with increased taxation for incomes of more than R$50,000 per month.
TAX PACKAGE
The federal government detailed on Thursday (Nov 28) the public spending review package.
The measures are not immediate and may undergo changesbecause they still need Congressional approval. They should only come into effect from 2025. Understand what does Lula’s team will try to score.
Read more details about the measures designed by the government.
The central objective of the package is to balance public accounts and meet fiscal targets. The government wants spending to equal revenues in 2025 (a the deficit is zero). In the following years, the target is to end up with accounts in the black. In practice, it is necessary to increase revenue and reduce expenses. Little was done on the side of the 2nd option, even with Lula 3 almost halfway through.
ADJUSTMENT HISTORY
The country’s salary floor exceeded this increase in 15 of the last 29 years, according to a survey by Poder360 based on data from the (Brazilian Institute of Geography and Statistics).
Under the Lula government, the minimum wage rose 2.5% above inflation in 2023 and 2024. With the economic team’s proposal, it will no longer be possible to exceed this level. Before 2023, the last time the correction was above this level was in 2015.
O Poder360 considered the accumulated INPC rate from January to December of each year to compare with the salary adjustment granted by the federal government in the following year. The remuneration value in December of each year was considered to eliminate possible adjustments granted in the middle of each year from the sample.
The data shows that, from 1996 to 2024, an adjustment of less than 2.5% above inflation was not uncommon. There was a correction above inflation in 6 years to a level below 2.5%: in 1999, 2002, 2011, 2014, 2016 and 2019. Lula’s policy could make this 2.5% salary increase a rule, which also has an impact on public accounts. In the 14 years (approximately) of the Lula and PT governments, for example, the minimum wage adjustment was not greater than this level: 2004, 2011 and 2016.
The minimum wage increased by 1,160.7% from 1996 to 2024. Meanwhile, the accumulated INPC from December 1996 to October 2024 was 429.3%.
CUTTING EXPENSES
The government’s measure aims to impose the same spending ceiling as the fiscal framework on mandatory expenses, such as social security benefits, salary bonuses and unemployment insurance, for example. These programs are indexed to the minimum wage.
In the government (PL), the minimum wage was corrected from the INPC. The index measures price variation for families with incomes of 1 to 5 minimum wages and headed by wage earners.
Under Bolsonaro, the minimum wage appreciated almost equal to the INPC rate in 3 years: , in and . In 2019, the amount of R$998 was for (MDB).
Bolsonaro sent the 2023 Budget with a projection of a . This amount was paid from January to April last year to INSS (National Social Security Institute) workers and retirees. President Lula paid R$1,320, an amount that was paid for the remainder of last year (from May to December).
In August 2023, Congress proposed the Lula government to return to the valuation of the minimum wage similar to what was done before Bolsonaro. How it works: the value of the minimum wage will be the result of the variation in the INPC up to the previous November and the variation in economic activity in the previous 2 years.
For example, the minimum wage, which was R$ 1,320, rose 3.85% due to the appreciation of the INPC accumulated until November 2023 and another 3% due to the growth in GDP (Gross Domestic Product) in 2022. The equation took the minimum wage to R$ $ 1,412 in 2024. The economic team proposed, in August, an adjustment of 6,87% in the minimum wage for 2025, which increases the remuneration to R$1,509.
