Economic team estimates that there will be a reduction of R$327 billion in expenses over the next 6 years
The president’s government (PT) sent this Monday (Dec 2, 2024) the message sending the PEC (Proposed Amendment to the Constitution) to Congress for the review of expenses. The projection for cutting expenses over the next 5 years is . In 2025 and 2026, the estimated impact is . Here is the order (PDF – 91 kB).
The economic team proposes changing the rules on the minimum wage, social benefits and military retirement to save over 6 years. The measures are not immediate and may undergo changes, as they still require approval from the National Congress. Until the publication of this report, the PEC had not yet been registered in the Chamber’s system.
The changes should only come into effect in 2025. In addition to the PEC, the government sent a PLP (complementary bill) and a bill on November 29th. Each type of text has a different form of analysis in the Legislature:
- PEC – modifies the text of the Constitution, dealing with structural issues. It needs approval in 2 rounds in both the Chamber and the Senate with 3/5 of the votes in favor (more than the absolute majority) in each House – which increases the need for support;
- bills – legislative proposals that can create, amend or repeal laws. It needs an absolute majority (50% + 1) to pass.
LATE SHIPPING
On July 31, Lula said that there would be predictability, without decrees made “at midnight”.
It’s not the first time he’s cited something like this to say that the government is transparent and stable. On July 30, the PT administration, however, suspended the budget at around 11 p.m.
The situation was repeated when the Budget was blocked on September 30th.
MINIMUM WAGE EXPENDITURE
The idea is to 2.5% above inflation. The Ministry of Finance calculates a saving of R$2.2 billion with the initiative in 2025 and R$ 109.8 billion until 2030.
The government readjusts the minimum wage every year. Lula committed to always changing the value by calculating inflation, in addition to the variation in GDP (Gross Domestic Product) from 2 years before.
The new limit does not mean that remuneration will decrease from one year to the next. It will continue to increase, but at a lower level than in times of a booming economy.
The calculation will be as follows:
- minimum wage + (minimum wage x inflation) = correction for inflation;
- correction for inflation + (correction for inflation x limiter) = value of the next minimum wage.
THE SPENDING CUTTING SAGA
The official announcement of the package came after long discussions about measures aimed at public expenditure. The economic team has highlighted the issue especially in the last 5 weeks, despite it being a long-standing government promise.
The president (PT) in November with several ministers to debate the topic. Haddad had said he would deliver the package at the beginning of the month, which did not materialize.
The main reason for the delay was disagreement between government members, who did not want their areas affected. Another point that worried Planalto was Lula’s popularity. Many of the affected programs have strong social appeal.
Other events left the calendar tight, such as , on the 18th, and , on November 13th.
The ministers outside the economic team who were most involved in the discussions were:
- José MúcioDefense;
- Camilo SantanaEducation;
- Luiz MarinhoLabor;
- Carlos LupiSocial Security;
- Paulo Pimentafrom the Secretariat of Social Communication.
INCOME TAX
The Lula government also needs to submit to Congress the proposal to exempt IRPF (Personal Income Tax). This Monday (Dec 2), the Executive Secretary of Finance, Dario Durigan, from the economic team in December 2024 is to deal with the spending review package.
Number 2 of the Treasury also said he was “non-negotiable” debate the new IRPF exemption range without compensation. “And this is not a debate for now, for the end of the year”he declared.
According to Haddad, the new IR exemption will be paid for by taxing those who receive more than R$50,000 monthly. The changes will take place in 2026, if approved by Congress.
There will be a minimum income tax rate of 10% for this group, which will apply to any type of financial gain such as profit, dividends, rent, bonuses and others. Currently, the rate is 27.5% for earnings above R$4,664.68 per month, but the government will now consider types of income currently exempt.
“The idea is not to have an additional tax rate for those who earn more. The idea is to have a minimum tax, which runs parallel to the Income Tax table”disse Durigan.
The secretary also indicated that the bill that the government will send to Congress on the subject will have changes to the rules for paying dividends outside the country.
“We have been debating the issue of paying dividends abroad so that there is no incentive to change tax domicile, but this will be presented when the bill is presented to Congress”these.
