Minimum wage: how much did each government raise the floor? – 05/01/2023 – Market

The new minimum wage of R$1,320 came into effect this Monday (01/05), representing an increase of 1.4% or R$18 compared to the value of R$1,302 that had been in force since January 1st.

The above-inflation readjustment had been one of the campaign promises of President Luiz Inácio Lula da Silva (PT), who thus resumes the appreciation of the minimum wage, one of the hallmarks of his first two terms.

But how much has the minimum wage appreciated in each government since the end of hyperinflation with the approval of the Real Plan?

And what is the impact of this year’s readjustment and the one expected for 2024 on government accounts?

We asked economists Daniel Duque, a researcher at Ibre-FGV (Brazilian Institute of Economics of the Getulio Vargas Foundation), and Vilma Pinto, director of IFI (Independent Fiscal Institution) of the Federal Senate.

How much the minimum wage appreciated in each government

When Fernando Henrique Cardoso (PSDB) took over the Presidency in 1995, the minimum wage was worth R$70 and would reach R$240 at the end of his second term, in 2002.

Under Lula, it went from R$240 to R$545 in eight years, between 2003 and 2010. Under Dilma Rousseff (PT), it went from R$622 to R$880, in her little more than five years in office, interrupted by the impeachment.

Michel Temer (MDB) took over the government with the minimum of R$ 880 and delivered at R$ 954. While under Jair Bolsonaro (PL), the amount ranged from R$ 998 to R$ 1,212.

Now, under Lula’s third term, the minimum started in January at R$1,302 and rose to R$1,320 in May.

But, to assess how much the minimum has appreciated in each government, it is not enough to look at the nominal values. Inflation must be discounted for each period.

To make this calculation, Daniel Duque, from FGV, deflated the values ​​of the minimum wage by the IPCA, the country’s official inflation index.

And what the data show is that the minimum appreciated 30.5% in FHC’s first term and 7.3% in the second, totaling a real appreciation of 40% in the toucan’s eight years.

Lula registered the highest appreciation among the presidents who governed the country after the hyperinflation. In his first term, the appreciation of the minimum was 38.3% and in the second, 17.4%, totaling 62.4% of gains above inflation in eight years.

In the Dilma government, with the country’s growth losing steam, the real gains in the minimum wage also lost strength: they were 12.4% in the PT’s first term and 5.5% in the second, adding up to 18.5% in her little more five years in office, until impeachment.

Under Temer and Bolsonaro, the country abandoned the policy of real appreciation of the minimum, starting to readjust the base salary only for inflation.

As a result, the floor stagnated, registering a negative variation of 0.2% in just over two years of the emedebista’s management and a real devaluation of 1.2% during Bolsonaro’s four years.

Now, with the two readjustments already announced by Lula in 2023, the minimum real gain returned: 6.1% until May, considering the projected inflation for the current month in the Focus bulletin.

Purchasing power in relation to the basic food basket

Another way of assessing what happened to the minimum wage in each government is to look at the purchasing power of the minimum wage in relation to the basic food basket.

Using the value of the basic food basket in São Paulo calculated by Dieese (Inter-union Department of Statistics and Socioeconomic Studies), Duque finds that the purchasing power of the minimum wage grew 57.4% in both FHC’s terms; 52.7% under Lula’s eight years; only 3.4% in the Dilma administrations; 1.7% under Temer; plummeting 24.3% during the four years of the Bolsonaro government, amid the sharp rise in food prices in the period.

With the readjustments announced by Lula, and in view of the expected value for the basic basket in April and May, the purchasing power of the minimum in relation to the basic basket grows again this year, by 10.4%.

Even so, the minimum wage of R$ 1,320 currently only buys around 1.6 basic baskets, still below the 2.2 baskets that were possible to buy with the minimum in August 2018, the highest point of the floor’s purchasing power in relation to the basic basket, recorded during the Temer government.

What happened in each government

“The policy of valuing the minimum wage has basically always had two vectors, which are very intertwined: the economic situation and the fiscal situation in the country”, observes Duque.

The economist recalls that, in FHC’s first term, there was a combination of good economic growth, with inflation under control. The minimum wage was also very undervalued, after 20 years of high inflation and disproportionate readjustments.

“There was plenty of room to make the readjustment, and the overvalued real contributed to a lower food inflation, which also increased the purchasing power of the salary”, he says.

In the second FHC administration, the scenario became more complicated, with lower growth and a worsening of the public accounts situation. In 1999, the so-called Macroeconomic Tripod was implemented – a set of measures that combined floating exchange rates, inflation targets and fiscal targets.

“The greater fiscal control put pressure on there not to be so many readjustments of the minimum [já que o salário base serve de referência para gastos públicos como aposentadorias, benefícios sociais e salários do funcionalismo]. There was no real loss, but there was no great appreciation in the period either”, says Duque.

In a scenario of resumption of economic growth, Lula realizes in his first term the highest valuation of the minimum of the post-Real Plan period.

In 2007, this valuation policy was consolidated in a rule, which provided for the annual correction of the minimum by the variation in inflation in the previous year, plus the GDP growth of two years before. This rule would become law in 2011.

Even so, in Lula’s second term, the appreciation loses some strength.

“The Dilma government maintains the same valuation policy, but in a scenario of lower growth, which results in lower minimum readjustments”, observes Duque.

Under Temer and Bolsonaro, in a scenario of fiscal restrictions, the policy of valuing the minimum is abandoned and readjustments are now made solely for inflation.

Added to this, in the Bolsonaro government, a sharp rise in food inflation – impacted by the pandemic, crop failures due to climate issues and the war in Ukraine – which further undermined the purchasing power of the minimum wage in relation to the basic food basket. .

With the return of appreciation, Duque highlights the importance of basic salary.

“The minimum wage was largely responsible for reducing income inequality in the country between 1995 and 2015”, observes the economist.

“There was also an important effect in the fight against poverty, mainly due to the benefits linked to this value.”

According to Dieese, Brazil has 60.3 million people with an income referenced to the minimum wage, with 24.8 million INSS beneficiaries and 18.4 million employees, among other groups.

The minimum also impacts workers without a formal contract and on their own, as it serves as a reference for the entire economy.

Impact of the readjustment of the minimum on public accounts

Despite these positive effects, the valuation of the minimum has a cost.

According to the government’s calculation, each R$ 1 increase in the minimum wage has an impact of R$ 368.5 million per year on public accounts.

Thus, the increase of R$ 18 that takes effect now in May should generate an impact of R$ 4.5 billion on government accounts between May and December of this year.

For 2024, the government sent the draft Budgetary Guidelines Law (PLDO) with a minimum wage forecast of R$ 1,389, which considered only the readjustment for inflation.

But, according to the Minister of Labor, Luiz Marinho, the government should present a bill to Congress resuming the policy of real appreciation that prevailed in previous PT governments.

If the rule is resumed, the minimum would go to BRL 1,429 in 2024, generating an additional cost of BRL 14.7 billion for government accounts next year.

In addition, the government only increased the value of Bolsa Família until May, readjusted civil service salaries by 9% and announced an increase in the Income Tax exemption range to R$ 2,640.

In the face of all this, analysts see with disbelief the promise of the Minister of Finance, Fernando Haddad, to zero the primary deficit as early as 2024.

The primary result is the difference between government revenues and expenditures, and the deficit occurs when this result is negative.

“The goal of zeroing the deficit next year is not compatible with the current structure of government revenues and expenditures”, considers Vilma Pinto, director of the IFI.

Thus, the government will have to cut spending or increase revenue to rebalance the public accounts.

“The government has signaled that this should happen on the revenue side [isto é, com maior arrecadação]but the big question is that it cannot be a non-recurring revenue, it has to be something that generates a medium-term effect, so that there is an impact on the sustainability of public accounts”, explains the economist.

“As our debt is already at a high level, if we are not able to generate a result that makes it stable, this affects the agents’ expectations and increases the fiscal risk. This has consequences for economic activity, with effects on inflation and the unemployment rate. .”

In other words, if the imbalance in public accounts continues, the benefit of raising the minimum wage above inflation could be eroded by an acceleration in prices and less job creation.