Salaries increase their share of GDP again – 03/16/2024 – Market

In addition to the effect of billion-dollar public spending in 2022 and 2023, the real jump of 11.7% in labor income last year, the biggest since the Real Plan, was related to the drop in the share of companies’ profits in GDP (Gross Domestic Product) and the increase in the weight of wages in the economy.

Data from the Federal Revenue show that the collection of Corporate Income Tax and Social Contribution on Net Profit of companies fell by 9% in real terms (after inflation) last year.

It was in the same 2023 that labor income rose 11.7%, according to a calculation by economist Marcos Hecksher, from Ipea (Institute for Applied Economic Research) based on the IBGE Continuous National Household Sample Survey.

Much of the rise in income is related to the flood of incentives promoted by Jair Bolsonaro (PL) in the second half of 2022 in his attempt to be re-elected. Then, with the Transition PEC, of ​​R$145 billion, so that Luiz Inácio Lula da Silva (PT) could spend more in 2023.

Last year, there was also a real increase in the minimum wage (4.1%, the highest since 2012, according to Ipea), with impacts on social benefits and pensions; and the maintenance of Bolsa Família at R$600 per month — the same level since July 2022.

These measures had multiplier effects on wages, employment and GDP, which grew by 2.9% in 2023, and, mainly, on labor income, which increased by 11.7%.

Another factor that contributed to the increase in income would have been the growth in the share of salaries in GDP, to the detriment of companies’ gross profits (EOB, Gross Operating Surplus, as it is technically called).

According to Samir Cury, associate researcher at Insper, the 9% drop in corporate tax collection in 2023 is a clear indication that there has been a reduction in corporate gross profit.

As GDP grew 2.9% and income rose 11.7%, companies were among the “losers”. Cury estimates that, in practice, the division between companies’ gross profits and labor income would be returning to pre-pandemic levels, from the middle of the last decade.

Between 2015 and 2019, salaries and mixed income (self-employed people’s remuneration that cannot be identified as coming from capital or labor) maintained a share in GDP (from an income perspective) between 43.8% and 42.7%, according to the IBGE National Accounts System (SCN). In the same period, the companies’ share of gross profit fluctuated between 32.1% and 32.8%.

From 2020 onwards, gross profits gained ground in GDP, reaching 37.4% in 2021 — an increase of 4.6 percentage points over 2019. The share of salaries fell to 38.8% — a drop of 4 points.

There is still no official GDP data from the perspective of SCN income on what happened in 2022 and 2023. But Cury estimates that, for labor income to have grown 11.7% last year, companies’ gross profit may have fell around 6.4%. In 2022, labor income also grew (6.6% reais), which would reinforce the trend of increasing the share of wages in GDP.

“We will see a recovery of part of the ground. Perhaps the participation [dos salários no PIB] will not return to almost 44% in 2015, but it will be greater than 40%”, predicts Cury.

The economist states that much of the increase in labor income in 2023 was related to the strong increase in public spending, and that its continued growth is not sustainable from a fiscal point of view. Therefore, an increase in the share of income in GDP would be good news.

Like Marcelo Neri, director of FGV Social, Cury believes that, when the IBGE releases the complete 2023 PnadC, in April, the poverty rate in Brazil to be calculated from the data will show a sharp drop — taking into account the significant real increase in labor income in 2023 (11.7%) and the increase in Bolsa Família benefits, among other transfers.

The other side of the coin of more state spending and salaries boosting income and reducing poverty is the government’s difficulty in adjusting public accounts and the worsening business environment.

This makes what may come ahead bleak because, without robust results in the private sector, revenue (which pays the government’s bills) and employment (which improves the income of those who work) fall. In this context, how would the income be sustained?

Study by Cemec-Fipe (Center for Capital Market Studies of the Economic Research Institute Foundation) with data from 2023 shows that company debt ended the year at 35.9% of GDP, a level close to that recorded in the 2015 economic crisis , when this ratio was 36.1%.

Corporate default rates published by the Central Bank have grown rapidly since mid-2022, as have judicial recoveries.

According to Cemec-Fipe, data from companies of all sizes gathered by Serasa show that requests for judicial recovery increased by 80.7% in the last quarter of 2023, compared to the same period in 2022. A counterpoint is that employment began strong in January, with the creation of 180.4 thousand formal vacancies, higher than expected.

But, with a lower GDP forecast this year (1.78% according to the BC’s Focus survey) than that of 2023 (2.9%) and a drop in popularity, according to recent surveys, the Lula government has been looking for alternatives to stimulate growth. economy. How to anticipate, for April and May, the first and second installments of the 13th salary of retirees, pensioners and other INSS beneficiaries.

The initiative is added to the anticipation of the payment, in February (and not July), of R$30 billion in court orders to be paid in 2024. Another idea is to release a 5% portion of the savings resources compulsorily deposited with the BC to inject R$ 20 billion in Caixa Econômica Federal in order to finance the purchase of your own home.

In a recent ceremony at Planalto on the Growth Acceleration Program, Lula stated: “Let’s see how we can use more money to do more good for the people. What is important for you to be clear about is that no one will be left out” .

The risk of the strategy, pointed out by many economists, is that the government will further deteriorate public accounts and increase state debt. One of the highest among emerging countries, the Brazilian debt/GDP ratio closed 2023 at 74.3% — compared to 71.7% a year earlier.

The data is the main indicator of a country’s solvency. The worse it is, the more interest is demanded by the market to finance the government, with negative impacts on company profits and growth.