Guedes plan provides for minimum wage and retirement without correction for past inflation

Optimistic about the re-election of President Jair Bolsonaro (PL), Minister Paulo Guedes (Economy) is working on an ambitious plan to recast legislation on the country’s public accounts. The intention is to reformulate the spending ceiling and “break the floor”, that is, to stop the growth of expenses that today put pressure on the Budget – including social security benefits or benefits linked to the minimum wage.

The minister treats the matter as a legacy of his administration, but the proposal should only be made official in the event of a Bolsonaro victory on October 30. In that case, a PEC (Proposed Amendment to the Constitution) would be presented the day after the election.

The permanence of Guedes in an eventual second term of the president, say interlocutors, would be conditional on the willingness of the Planalto Palace to embrace the plans for what he calls a “new fiscal framework”, seen by the minister as a reinforcement of the so-called macroeconomic tripod — floating exchange rates, inflation targets and fiscal targets.

President Bolsonaro has already declared that, if he wants, the minister will remain on the ministerial team in the event of re-election.

The design of the new fiscal architecture would remove the need for an extra-ceiling spending license (called a “waiver”) — although the plan also establishes a number of new exceptions to the spending cap, in addition to minor correction of some spending.

In this way, it is estimated within the portfolio that it would be possible to accommodate about R$ 100 billion additional within the ceiling in 2023, honoring electoral promises such as maintaining the Auxílio Brasil floor at R$ 600, the payment of a 13th for female beneficiaries and the recomposition of funds for programs such as Farmácia Popular.

One of the main measures under study is the de-indexation of the minimum wage and social security benefits. Today, they are corrected by the INPC (National Consumer Price Index) of the previous year, which guarantees at least the replacement of the loss due to the increase in prices observed among families with incomes of up to five minimum wages.

Excerpts from the proposal obtained by the Sheet state that “the minimum wage is no longer linked to past inflation”. In the new rule, the floor “considers the inflation expectation and is corrected, at least, by the inflation target”. Spending on social security benefits “is also no longer linked to past inflation.”

This opens the possibility of a correction below inflation in social security benefits, which have expenses projected at R$ 859.9 billion for next year, and the minimum wage. The national floor also affects spending on unemployment insurance.

Another discussion is to change the index used for the IPCA (Broad Consumer Price Index), which measures the price variation felt by families with an income of up to 40 minimum wages — and which is usually lower than the INPC.

To get an idea of ​​the scale of the change, the 2021 INPC rose by 10.16%, a percentage used to update the minimum wage to R$1,212. If only the 2022 inflation target were applied, the increase would be 3.5%. If the option were for the expectation at the beginning of the year for the IPCA in 2022, the readjustment would be 5.03%. The details are still under discussion and are not final.

Today, the Constitution ensures that the minimum wage has its purchasing power preserved through periodic readjustments — which guarantees, at least, correction for inflation. The national floor is also the minimum reference for the payment of pensions.

The Bolsonaro government sent the 2023 budget proposal with no real readjustment forecast (that is, with gains beyond inflation) for the fourth year in a row.

Previous attempts to unlink pension benefits or the minimum wage have faced resistance from Bolsonaro, who has even threatened with a “red card” a secretary at the Ministry of Economy who was a spokesman for a similar proposal in 2020.

Greater flexibility in these expenses, however, has always been a Guedes banner and is defended by current members of the economic team. In June, the Special Secretary for the Treasury and Budget of the Ministry of Economy, Esteves Colnago, stated in a public hearing in Congress that the biggest measure in the fiscal area would be to review the automatic increase in public expenditures – and cited as an example the de-indexation of social security benefits and minimum wage.

Now, Guedes resumes the proposal to include it in his new fiscal framework. The minister has held several meetings with the technical areas to prepare the PEC with the changes.

In the reformulation led by the minister, the removal of certain expenses from the spending ceiling is also being defended. Among them, the non-recurring ones that were supported by a reduction of the State, with the sale of assets (such as state-owned).

For the minister, the revenues from these operations can even supply the so-called Brazil Fund, an instrument planned by him to receive resources from privatizations and allocate 50% of the amount to the reduction of public debt. Another 25% would be allocated to investments and the remaining 25% to beneficiaries of Auxílio Brasil.

People involved in the discussion cite that, by getting rid of a company like PPSA –the state-owned company that sells the Union’s share of oil in pre-salt contracts–, the government could reduce debt, invest in works and fight poverty. As an illustration, the possibility of granting a single benefit of R$ 10 thousand to vulnerable families in the event of the sale of a state-owned company is mentioned, an expense that would be beyond the ceiling.

Today, the spending ceiling is only corrected by the variation of the IPCA from the previous year, a model that Guedes considers “poorly constructed” and a “flagship” for a country that still lives under irresponsibility in managing the Budget.

Technicians from the Ministry of Economy had already been working on a redesign of the spending ceiling, with two different models. In the discussions, the minister has expressed a preference for the SPE (Secretariat of Economic Policy) proposal.

as anticipated the Sheet, this rule allows the real growth of expenses according to the variation of GDP (Gross Domestic Product). The magnitude, in turn, would depend on the country’s indebtedness level.

However, the head of the economic team considers that the change in the pace of expansion of the spending limit alone is insufficient. Therefore, the team also evaluates changes in expenses that are the basis for calculating the ceiling.

One of the ideas is to exclude all social security expenditure from the ceiling and consider, under the limit, only the amount related to the deficit — the volume of benefits that are not covered by INSS revenues. There is an assessment that spending on benefits has a high growth rate, because of the new concessions, which ends up stealing space from other expenses. The deficit, estimated at R$ 264.9 billion for 2023, has a slower evolution.

The logic of the change would be to consider that part of the INSS expenditure is financed with its own revenues for this purpose and, therefore, they would not need to be in the limitation.

The same reasoning is applied to other rubrics. In internal discussions, it is also considered to exclude from the calculation basis of the limit other expenses based on own revenues, such as those collected by universities or other public administration bodies. Some covenants and donations would also be off-limits.

But the discussion is far from a consensus and faces criticism in the technical area for contradicting the very principle of the ceiling, which focuses only on controlling expenses.

The team also proposed reviewing the salary bonus, a kind of 14th salary paid to workers with a formal contract who earn up to two minimum wages. But, according to people interviewed by the report, the minister resists changes in this benefit. In 2020, Bolsonaro reacted to a similar proposal by saying that he would not “take from the poor to give to the very poor”.

Guedes has been warned by a wing of the team that the measures could put even more pressure on public debt, which is already at a high level; but, for him, the sale of assets is capable of ensuring greater control over indebtedness.

In the internal negotiations, technicians also discuss the possibility of the Executive Power using fiscal space that is currently reserved for other Powers, such as the Judiciary and Legislative. The objective is to avoid that the real growth of the general expenditure ceiling ends up irrigating substantial salary increases to these categories.

The other model has been formulated by the National Treasury and authorizes real expenditure growth according to the level and trajectory of the public debt, at a rate to be defined every two years. The proposal also grants an annual bonus to increase spending in the event of an improvement in the surplus in public accounts.

However, according to Guedes’ interlocutors, he sees in the Treasury’s design an incentive to increase the tax burden (because of the surplus bonus), in addition to complaining about the lack of incentive to sell assets. Therefore, this proposal is in the background in the minister’s preferences.