Minimum wage readjustment should cost more than twice as expected, and government evaluates alternatives

The government of Luiz Inácio Lula da Silva (PT) received a warning that raising the minimum wage from the current R$1,302 to R$1,320, as promised shortly after the elections, could cost R$7.7 billion above than forecast in the 2023 Budget —more than double the amount initially calculated.

The letter was sent to the transition in December by the team of the then Minister Paulo Guedes (Economy), based on calculations made by the technical staff of the SOF (Federal Budget Secretariat) —a permanent structure of the Executive Branch and composed of career civil servants.

The notice means, in practice, that the new government may need to block other expenses in order to be able to reallocate resources and pay for the additional increase in the minimum wage, one of the PT’s main campaign flags.

The blockade would be necessary because the spending ceiling rule, although it has already foreseen changes, is still in effect and needs to be respected by the government in budget execution.

According to interlocutors interviewed by Sheet, the economic team is evaluating alternatives to minimize this impact, such as the possibility of implementing an increase in the minimum wage throughout the year —during campaign discussions, an increase on May 1, Labor Day, was even considered. Each additional month without the new readjustment means a lower increase in expenses.

The government must also take into account whether any other expenditure will have a reduction in the projection for the year and the number of people covered by Social Security. Expenses with INSS benefits are impacted by the value of the minimum wage.

Therefore, the assessment is that it is first necessary to be clear about the numbers to then make a final decision on the subject. So far, Lula has not given any indication of when he intends to edit the MP (provisional measure) that will set the new minimum.

The last measure, which established the value of R$ 1,302, was signed by then-President Jair Bolsonaro (PL) in the last weeks of his term.

The alert was sent to the then transition coordinator, Vice President Geraldo Alckmin (PSB), but also reached the hands of members of the team of the Minister of Finance, Fernando Haddad (PT). SOF, in turn, is linked to the Ministry of Planning and Budget, headed by Simone Tebet (MDB).

Sought, the Treasury did not respond until the publication of this text. In Planning, the structure has not yet been finalized, and the minister should only speak out on matters in the portfolio starting next week.

Even before taking office, Lula’s team negotiated with Congress a PEC (proposed amendment to the Constitution) to authorize an increase in spending in 2023, with the aim of keeping public policies in operation and ensuring the minimum payment of R$ 600 for beneficiaries of Aid Brazil.

As part of the PEC, an additional R$6.8 billion was set aside to increase the minimum wage to R$1,320. The SOF team estimates that the impact was already underestimated by BRL 216 million, if the same assumptions are considered and without taking into account other increase factors.

The biggest problem, however, is that some factors boosted spending linked to the minimum wage in the final stretch of 2022. The main one was the reduction in the INSS (National Social Security Institute) queue, which allowed for a greater number of retirement concessions and pensions.

As part of the queue still persists, the technicians also assumed a scenario of greater vegetative growth of the payroll (the increase in the number of beneficiaries considering the difference between who enters and who leaves) for 2023, both in Social Security and in the BPC (Benefit Prestação Continuada) , paid to low-income seniors and people with disabilities.

These two factors —increase in the beneficiary base and the prospect of greater payroll growth— would generate an additional bill of R$14.9 billion, according to SOF calculations.

On the other hand, the slowdown in inflation at the end of 2022 mitigated part of this impact. The Budget considered a rise of 7.41% in the INPC (National Consumer Price Index), the minimum wage and retirement index, but the updated projection is 5.81%. In practice, it is as if there were savings of R$ 7.37 billion.

The final balance of this combination of effects is the impact of R$ 7.7 billion.

The assessment of the new government’s interlocutors is that some assumptions adopted by SOF are very conservative, such as the perspective of a vegetative growth of 2.24% in the Social Security payroll and 5.78% in that of the BPC.

According to the letter, these percentages take into account the “most recent level observed” in the granting of benefits, given the reduction in the queue.

However, the technicians’ analysis is that the continuation of the reduction of the INSS queue will not necessarily lead to an increase in payments in the same magnitude as that observed in 2022. That is why there is an attempt at a more in-depth analysis of the numbers.

The future value of the floor became one of the points of conflict between the campaigns, especially after the Sheet reveal Guedes’ plans to loosen the mandatory correction of the minimum wage for inflation, opening the door to a reduction in workers’ real purchasing power.