Framework can stop the real increase in the minimum wage – 05/12/2023 – Market

The National Congress and the Lula government (PT) are discussing including in the fiscal framework an excerpt that suspends the real increase in the minimum wage if the primary result target is not met for two years in a row, according to four people involved in the negotiation heard by the Sheet.

In this situation, the minimum wage would still be corrected by the official inflation index, to preserve its purchasing power, but without the additional increase foreseen in the valuation policy presented by the PT government.

The proposal was put on the table as a way to provide for the rebalancing of the accounts, in case the fiscal target fails. There is still no final decision on this point, discussed in the midst of negotiations by the rapporteur, Deputy Cláudio Cajado (PP-BA), to strengthen the rule.

The government participates in these discussions, but has had the challenge of balancing between demands from the market and from center and right-wing parliamentarians for a stricter norm and the pressures coming from the PT itself, which aims to loosen the guidelines.

The issue is considered sensitive because it interferes with one of Lula’s campaign platforms — the policy of valuing the minimum wage. In early May, the president forwarded a bill that resumes the rule that had already been in force in PT administrations: the granting of an adjustment for inflation plus the variation of the GDP (Gross Domestic Product) of two years before.

The discussion about the triggers, to be used in case of bills worse than expected, involves not only the demand of the market and the Legislature, but also a legal question.

The Emergency PEC (Proposed Amendment to the Constitution), approved in 2020, during the Bolsonaro administration, provides that the Executive must provide for rules aimed at the sustainability of the public debt in a complementary law, and this norm may authorize the application of triggers provided for in another article, the 167-A.

This device prohibits, among other things, the “adoption of a measure that implies readjustment of mandatory expenditure above the inflation variation, observing the preservation of the purchasing power referred to in item IV of the caput of article 7 of this Constitution”.

The correction of the minimum wage has a direct impact on a series of mandatory expenses, such as social security and assistance benefits, in addition to unemployment insurance and salary bonuses — a kind of 14th salary paid to workers with a formal contract who earn up to two floors.

There is an understanding within the government itself that the proposal for a fiscal framework —which is a complementary bill— is the norm that meets the constitutional command on debt sustainability, thus invoking the application of the triggers of article 167-A. Therefore, a minimum wage readjustment above inflation could be stopped.

That is also why other prohibitions provided for in this device, such as granting new resignations, readjusting civil servants’ salaries and holding new public tenders are also on the radar of the rapporteur and Congress.

In addition, there is an observation that the complementary law of the new fiscal framework will be, when approved and sanctioned, at a level above the policy of valuing the minimum wage (which would be an ordinary law) in the hierarchy of Brazilian legislation. In other words, the law dealing with the floor would have to be subordinated to the new fiscal rules.

To prevent the issue from becoming a political problem for the Lula government, in an environment of criticism of the fiscal framework, the government and Congress have been discussing how the 167-A triggers should be applied and with what gradualism.

One of the ways studied is to suggest that the suspension of the floor increase above inflation only comes into play in an extreme case, in which the primary result target is not met for two years in a row.

Violation of the target for a single year would trigger the activation of other mechanisms considered less delicate.

In the evaluation of experienced technicians, it is possible that the minimum wage trigger is not even activated, since, in addition to the margin of tolerance for meeting the fiscal target, the government could resort to Congress to make the target pursued more flexible in case of threat to the result for the second year in a row. This would avoid the application of the sanction on the readjustment of the national floor.

Even so, the government’s behind-the-scenes bet is that the issue will generate discomfort in the PT bench and in President Lula’s surroundings, given the sensitivity of the matter.

The presentation of the opinion of the new fiscal framework was postponed until Monday (15), when Cajado should discuss the text with leaders of the Chamber. Therefore, it is possible that the report will still undergo further changes.

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Understand the debate on the framework and the minimum wage

What’s up for debate?

The government proposed a fiscal framework that limits spending growth and provides for a margin of tolerance to meet the primary result targets (obtained by the difference between revenues and expenditures). In case of non-compliance with the target, there is a sanction of a smaller increase in the expenditure limit in the following year.

Congress wants to strengthen the rule and provide for specific adjustment triggers, which would need to be followed by the government in case of exceeding the target.

What does the Constitution say?

The Emergency PEC, approved in 2020 and converted into Constitutional Amendment 109, provides that the government can provide for rules aimed at the sustainability of the public debt in a complementary law. There is an understanding that this law is the new fiscal framework.

In the same constitutional amendment, article 163 says that the law aimed at public debt sustainability may authorize the activation of triggers listed in another device, 167-A.

What are these triggers?

Article 167-A provides for a series of prohibitions, such as granting new resignations and increasing personnel expenses. One of the items prohibits the adoption of a measure that implies readjustment of mandatory expenses above inflation.

The minimum wage is the reference for two-thirds of retirements and pensions paid by the INSS, in addition to guiding a series of other mandatory expenses, such as welfare benefits, unemployment insurance and salary bonuses. Therefore, its correction is achieved by the constitutional trigger lock.

How does this affect Lula’s plans?

The Lula government presented a bill that institutes a policy of valuing the minimum wage, with correction for inflation plus the variation of the GDP (Gross Domestic Product) of two years before.

If the trigger is in fact included in the proposal, the Executive could be prohibited from granting readjustments above inflation in case of non-compliance with the fiscal target.

What is the solution under discussion?

To avoid an even bigger political problem, the government and Congress are discussing a gradual application of the adjustment triggers. In this way, the ban on raising the real minimum wage would only be triggered in the event of non-compliance with the fiscal target for two consecutive years. Other less delicate mechanisms would be implemented first.