Tebet and the government’s economic wing target retirement to contain spending

The Minister of Planning and Budget, Simone Tebet, began this week the latest public clash between the economic team and the so-called political wing of the government of Luiz Inácio Lula da Silva (PT). At the center of the conflict is Tebet’s proposal to delink the minimum wage from the minimum wage for retirement, pensions and other social programs, such as salary bonuses, unemployment insurance and the Continuous Payment Benefit (BPC).

The plan will not be formalized immediately. The minister wants to present it to the rest of the government by the end of 2025, as she told the newspaper “The State of S. Paulo“.

The question is whether the project will survive until then. It would be the first effective cost containment measure of Lula’s current term, something highly demanded of a management that until now has only sought to increase revenue.

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If carried forward, however, the plan would affect a relevant part of the president’s electoral base, which has been facing a drop in popularity for a few months, according to different surveys.

Meddling with the correction of retirement and other benefits also goes against the historic flags of Lula and the PT, defenders of the expansion of social spending and actions aimed at the lowest income groups.

The minister’s plans go further: the incorporation of Fundeb (basic education fund) into the minimum spending limit on education is also on the radar, which would allow saving resources by reducing other expenses in the area.

The measures, still under study, would be crucial for reducing public spending “wholesale”, compared Tebet in the interview with the newspaper “Economic value” in which he externalized the idea. The reaction of the national president of the PT, Gleisi Hoffmann, was immediate: “Decoupling Social Security from the minimum wage and including Fundeb in the Education floor account are very bad ideas, which contradict the government program elected in 2022”, wrote the deputy on X.

“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. It is worrying to say the least that they are defended by Minister Simone Tebet. Fiscal responsibility has nothing to do with social injustice,” she added.

The agenda was also the target of criticism from other members of the government. “I am totally against this proposal, which I find absurd,” said Labor Minister Luiz Marinho to “Estadão”. “If we are going to present a proposal like this, let’s put an end to the policy of permanent increase in the minimum wage.”

For the Minister of Social Security, Carlos Lupi (PDT), the suggestion presented by Tebet cannot be successful. “This is taking income from the poorest part of the population,” said Lupi to the same publication. “I will fight against it.”

The first time she brought up the subject, the Minister of Planning said that, as established by the Constitution, she would propose adjusting pensions and other benefits for inflation, according to “Value”.

To the “Estadão”, however, she guaranteed that there will be a real increase, even if it is lower than the minimum wage. “I will not devalue these policies, I will make them grow above inflation,” she said.

According to Tebet, an adjustment of R$10 to R$15 less in individual benefits could lead to a reduction of R$10 billion or R$15 billion in expenses, which could be reallocated to other programs. “It is necessary to ensure that, as a result, no one is left out of the Brazilian Budget or Social Security.”

Haddad and Lula have not yet commented on Tebet’s proposal

For now, the Minister of Finance, Fernando Haddad, who has also been involved in clashes with the PT leadership, has not officially commented on the matter. But the assessment of members of the party’s political wing is that Tebet’s ideas would have their approval, but that the minister would have “outsourced” the task of taking the news public.

Last week, the minister shared in the X article by economist Bráulio Borges, from Fundação Getulio Vargas (FGV), which, among other measures, recommends the decoupling of the minimum wage and benefits.

Borges writes in the text: “The minimum wage is a variable that must be readjusted over time in real terms, reflecting gains in labor productivity, but it is a variable that must regulate the labor market, that is, the life of those who are actively participating in economic production. Retirements and pensions should be adjusted only for inflation, maintaining purchasing power over time”.

At the end of April, when commenting on the judgment of the Federal Supreme Court (STF) on payroll tax relief for 17 sectors of the economy, Haddad said that maintaining discounts on the social security contributions of these agents would bring the risk of a new Social Security reform in three years.

“We have been trying to talk to the [17] sectors and municipalities. The Supreme scoreboard [5 a 0 pelo fim da desoneração] makes it clear that we have to find a way to not harm Social Security. Or in three years you will have to carry out another pension reform, if you have no income. Social Security revenue is sacred, to pay retirees. You can’t play with this thing,” he said.

Last week, the Secretary of the National Treasury, Rogério Ceron, said that the growth in social security spending deserves care and cited “eventual measures that allow the dynamics of this expense to have growth compatible with medium and long-term fiscal sustainability”. He also classified the increase in spending on the BPC, aimed at elderly or disabled people, as a “warning sign”.

So far, Lula has not entered the debate, at least not publicly. On Tuesday (7), however, he stated that he is “irritated” by the discussion about the fiscal target, which indicates that he would be unlikely to endorse austerity measures that affect social benefits.

“What I cannot do is keep the financial system every single day just looking at the fiscal deficit and not looking at the social deficit. Look at the people who are unemployed, who are sleeping on the street and who are starving. Stop looking only at your safe, your bank account. Look at the people,” she declared.

Expenses targeted by Tebet consume more than half of the federal budget

The General Social Security Regime is currently the largest expense in the government budget, not counting interest on public debt. In 2023, the item 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 value of the minimum wage.

Meanwhile, BPC, salary bonus and unemployment insurance accounted for 7.8% of primary spending last year, or R$166 billion.

The real gain policy, adopted in the first PT governments, was resumed in the current Lula administration. According to the rule, 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) of two years before.

Although it stimulates consumption and economic growth, this practice accelerates some of the government’s main expenditures beyond that allowed by the fiscal framework approved in 2023. According to the Budget Guidelines Law (LDO) of 2024, each R$1 increase in the minimum wage increases the Union’s expenses by R$389 million.

The second proposal announced by Tebet, to include Fundeb in the calculation of the constitutional minimum for education, could result in a cut of up to 1.8% of current primary expenses.

According to the Constitution, today the government must spend at least 18% of its net tax revenue on education. Other than that, you have to supply Fundeb, which is not included in the rule.

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.