Contrary to the promise, social inequality must persist in Lula 3

Summary of this report:

• New minimum wage and reformulation of Bolsa Família favor income growth for the poorest in 2023
• However, classes A and B will have income growth much higher than that of other income groups from 2025, points out a study.
• Education not converted into productivity gains hinders social mobility

One of the main campaign promises of then-candidate Luiz Inácio Lula da Silva (PT) last year was to reduce social inequality. But the scope for achieving this goal in his mandate is small, even in the face of the expectation of economic recovery in the coming years.

A study by Tendências points out that income growth in the different social classes should be more equal in 2023 and 2024. However, from 2025 onwards, the increase in the average household income of classes A and B – those who earn more than R$ 7 ,6 thousand per month, according to the consultancy’s criteria – it tends to be much higher than that of the other classes.

“The heterogeneity between social classes must be maintained in the Lula government. There is not much chance of migration from classes D and E – who earn up to R$ 3,200 a month and are more subject to informality and low wages – going towards the middle class”, highlights analyst Lucas Assis.

The biggest obstacle to income growth in the poorest social strata is education that does not translate into productivity. “Entering the labor market is the main means of reducing poverty, but it is not a sufficient condition for overcoming it”, informs a report by the consultancy.

Tendências recalls that the Brazilian market is strongly characterized by low wages, high inequalities between groups of employed population, high rates of informality and marked heterogeneity between the productive sectors.

Resumption tends to favor the richest

The consultancy points out that the recovery of the economy tends to favor the upper classes. “The greater concentration of employers at the top of the social pyramid provides a quick financial rebalancing of families. With income linked to the earnings of their companies, business owners seek to recover the historical pattern of profit, before readjusting wages and rehiring”, emphasizes the study.

Formed by 2.9% of households and responsible for more than a third of the total income, class A has a high share of other sources of income such as interest (remuneration of financial capital), rent (remuneration of property) and profits ( excess amount distributed or retained).

The income of households dependent on the remuneration of financial capital should benefit from high interest rates. Even with the Selic cut, which went from 13.75% to 13.25% per annum on the 2nd, the expectation is that the monetary policy will remain restrictive in the coming months.

The median of projections from the Focus bulletin, from the Central Bank, points to a basic interest rate of 11.75% at the end of this year and 9% at the end of 2024.

Another factor that fuels more favorable expectations for classes A and B is the reduction in uncertainties about the economy, which are at the lowest levels since November 2017, according to the Brazilian Institute of Economics of the Getulio Vargas Foundation (FGV Ibre). Expectations of the vote on the tax reform in the Senate and on the fiscal framework in the Chamber are contributing to this.

Income growth expected to be even in 2023 and 2024, but uneven thereafter

For this year, the consultancy projects a growth of 6% in the mass of total income of classes A and B, lower than the 6.4% of classes D and E. The money available for consumption and savings will grow at a slower pace in the year which comes, around 2%, motivated by the effects of high interest rates on consumption and the slowdown in economic activity.

However, the projections made by the Tendências consultancy indicate that, in 2025, the expansion of the variation of the total income mass of class A will be almost four times greater than that of classes D and E. In 2026, more than five times greater.

According to Tendências, the social mobility of classes D and E towards the middle class should be slower in the coming years, following a phenomenon typical of countries with high income inequality.

It is the opposite of what happened last year. After the expansion of the lower income strata in 2021, due to the impacts of the Covid-19 pandemic, the poorest families migrated to the middle class in 2022. This occurred as a result of the intensive recovery in labor, with emphasis on services provided to families and the public sector. Employment growth was driven by the increase in formal employment.

New minimum wage and Bolsa Família help the poorest in 2023

The new minimum wage, which had a real growth (inflation already discounted) of 1.4%, and the reformulation of the Bolsa Família, which should have an increase of 28.1% in relation to the Auxílio Brasil, increased the mass of earnings of the poorest in 2023.

The program now guarantees a minimum amount of R$600 per family; the addition of R$ 150 per child up to six years old and the additional R$ 50 per child or adolescent from 7 to 18 years old and per pregnant woman; in addition to a minimum per capita income. There is also the expectation of an increase in the number of beneficiary families, even with the fine-tooth comb in the Single Registry made by the federal government.

Tendências’ expectation is that Social Security payments should advance in 2023, benefiting from the real appreciation of the social security floor and the reduction in the queue of new applications.

The impacts of the real gain on the floor should also extend to the continuous benefit (BPC), intended for the elderly over 65 years of age or the disabled person of any age with a per capita income equal to or less than a quarter of the minimum wage.