The Minister of Planning, Simone Tebet, defends decoupling some of the government’s biggest expenses from the minimum wage: the minimum wage for retirement and pensions, the salary bonus, unemployment insurance and the Continuous Payment Benefit (BPC).
In practice, this means ending the real increase granted every year to these benefits and giving them the same treatment that is already given to retirements and pensions above the minimum: correction only for inflation.
As the minimum wage continues to rise above inflation and benefits are updated only by inflation, each beneficiary will receive less than one minimum wage per month.
“We’re going to have to do this out of conviction or out of pain,” said Tebet in an interview with the newspaper “Valor Econômico” published on Monday (6). The minister – responsible for a public spending review program that has been quite timid so far – said that “it is no longer possible to work in retail”, that is, with small specific measures, and that it is necessary to “put your finger on the wound” of expenses governmental.
Infographics Gazeta do Povo[Clique para ampliar]
The General Social Security Regime – under the responsibility of the INSS – is currently the largest expense in the government’s primary budget (that is, not counting interest on public debt). In 2023, it consumed R$899 billion, equivalent to 42.3% of the Union’s primary expenses. And more than 60% of social security benefits correspond to the minimum wage – so, whenever it has a real increase, such payments rise accordingly proportion.
Meanwhile, BPC (paid to poor, elderly or disabled people), salary bonuses and unemployment insurance accounted for 7.8% of primary spending last year, or R$166 billion.
Tebet is also considering proposing to incorporate Fundeb – the basic education fund – into the education spending floor, another measure that would save resources.
According to the Constitution, the government must spend at least 18% of its net tax revenue in this area. Other than that, you have to supply Fundeb. Until 2020, the Union participated with 10% of the fund, and the remaining 90% came from state and municipal taxes. But a constitutional amendment approved that year determined the gradual increase in the federal share, which rose to 12% in 2021, is now 19% and will reach 23% in 2026.
The amendment boosted government spending with Fundeb. Between 2020 and 2023, they jumped from R$15 billion to R$37 billion. In these three years, its share of the budget pie more than doubled, going from 0.8% to 1.8% of primary expenses.
Therefore, Tebet’s agenda seeks to modify the formula for correcting expenses that correspond to more than half of the Budget. According to the 2024 Budget Guidelines Law (LDO), each R$1 increase in the minimum wage increases government expenses by R$389 million.
In other words: in addition to increasing disbursements by private sector employers, the minimum adjustments also have a strong impact on the government’s own expenses.
Ending the link, however, would be a most unpopular initiative. Before going through Congress’s analysis, it would have to overcome the scrutiny of President Luiz Inácio Lula da Silva himself and his party, the PT, which have always been advocates of increasing social spending.
Gleisi says Tebet’s ideas are “very bad”
The disclosure of the Planning Minister’s plans provoked an immediate reaction from the national president of the PT, deputy Gleisi Hoffmann (PR). She said that “these are very bad ideas, which contradict the government program elected in 2022”.
“If adopted, they would directly harm millions of retirees and public school students, the population that needs to be protected by State action, actions guaranteed in our Constitution”, wrote Gleisi on the social network X.
Tebet highlighted, in the interview, that his proposals will still go through Minister Fernando Haddad, of Finance, and that the person who will be able to take them to President Lula is the Budget Execution Board, which brings together authorities from the government’s economic area.
Haddad did not make a public statement defending or refuting Tebet’s proposals. But, last week, the minister shared an article by an economist who, among other measures, recommended precisely the decoupling of the minimum wage and benefits. “I recommend this article by Bráulio Borges, an economist at FGV, about the recent dynamics of public accounts”, wrote Haddad in X, without further comment.
Paulo Guedes defended decoupling
Such decoupling is not a new idea: most public accounts experts have said for years that it is essential to stop the escalation of government spending and guarantee the sustainability of any fiscal regime. It was part, for example, of the famous “DDD” agenda – unlink, deindex, release – of Paulo Guedes, Jair Bolsonaro’s (PL) Economy Minister.
Guedes did not formally propose the separation. But he managed to avoid real increases in benefits in another way: by abandoning the policy of real minimum wage increases inherited from previous administrations. During much of the Bolsonaro administration, the salary floor was adjusted only for inflation – which automatically limited the expansion of spending on Social Security, bonuses, unemployment insurance and BPC.
The policy of real gains, adopted in the first PT governments, has now been resumed under the Lula 3 administration. Every January, the minimum wage receives, in addition to the pass-through of the previous year’s inflation, a real adjustment equivalent to the growth of the Gross Domestic Product (GDP) from two years before.
Although it stimulates consumption and economic growth, this practice accelerates some of the government’s main spending beyond that allowed by the fiscal framework approved in 2023.
The new regime determines that the Union’s total expenses must have real growth of between 0.6% and 2.5% per year. This means that, whenever the minimum wage has a real gain above 2.5%, all benefits linked to it will grow beyond the framework limit. This year, for example, the salary floor rose 3% above inflation.
This mismatch compresses other expenses, such as investments, forcing the government to limit them – or to review fiscal targets, as it did in April, just seven months after the framework was sanctioned.
