Will minimal wage and retirement lose worth? What is understood up to now
- October 25, 2022
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A report by Folha de S.Paulo published on Wednesday (19) revealed that the Minister of Economy, Paulo Guedes, is studying a plan to change the policy of readjusting the minimum wage, currently at R$1,212. The idea is to stop correcting the national floor for inflation and start doing it by the target, which is defined three years in advance and can be higher or lower than the official index.
The objective, still according to Folha, is to stop the growth of expenses that today put pressure on the Budget. Among these expenses, there is the payment of retirements, pensions and social security benefits linked to the minimum wage.
See what is known so far about the government’s proposal and understand what could change:
What is the proposal?
According to Folha, Paulo Guedes’ proposal is to stop linking the minimum wage to the previous year’s inflation, measured by the INPC (National Consumer Price Index). In the new rule, the floor would be readjusted by the inflation target —which may be higher or lower than the official rate.
The correction of benefits linked to the minimum wage, such as retirements and pensions paid by the INSS (National Social Security Institute), would also be made based on the inflation target.
What is ‘inflation target’?
The inflation target is a range that determines the maximum and minimum values for the variation of inflation in a given year. In Brazil, it is defined by the CMN (National Monetary Council) three years in advance.
The one for 2022, for example, was set at 3.5%, with a tolerance of 1.5 percentage points up or down (that is, it can vary from 2% to 5%).
According to the latest projection by IPEA (Institute of Applied Economic Research), the INPC for 2022 should be 6% — above the target ceiling (5%).
What does the government say?
On Thursday (20), Paulo Guedes said that the minimum wage for 2023 will be readjusted at least for inflation.
There is a rule that says that the minimum wage will rise according to inflation, at least that of last year, and [dizem que] they [governo] want to change. The game rules are not changed during the game. The game is running.
Paulo Guedes, Minister of Economy
Although he denied changing the “rule of the game” now, the minister returned to defend what he calls the “rule of 3D”: de-index, unlink and release the Budget. In practice, the idea is to change the Constitution to stop linking expenses to specific rates or values, such as the minimum wage itself.
“We need to put more intelligence and more politics into budgets, rather than simply following a binding rule that may be inappropriate,” he said.
On Saturday (22), alongside Bolsonaro, Guedes again promised an increase above inflation in the minimum wage, pensions and public service income.
What do critics say?
Critics of the proposal say that readjusting the minimum wage by the target opens the possibility of a correction below inflation for social security benefits, such as retirements and pensions, in addition to unemployment insurance, which is also linked to the national floor.
This would happen every time official inflation is higher than the target set three years earlier, as it should happen in 2022, according to projections.
In 2021, the INPC stood at 10.16% — a percentage very close to the readjustment of the minimum wage, which rose from R$1,100 to R$1,212 this year (+10.18%). If the government had only considered the inflation target, this correction would have been 3.75%, from R$1,100 to 1,141.
How is it today?
The Constitution determines that the minimum wage must meet the basic needs of workers and their families and have “periodic readjustments that preserve their purchasing power”.
In 2011, the first year of Dilma Rousseff’s (PT) government, it was established that the national floor would be corrected based on the INPC of the previous year and on the variation in GDP (Gross Domestic Product) of two years earlier. This formula was intended to ensure that the minimum had a real increase—that is, above inflation—every year.
The exception was 2017 and 2018. In these two years, the readjustment of the national floor considered only the INPC, since the GDP of 2015 and 2016 registered a fall.
As of 2019, already in the Bolsonaro government, the calculation started to take into account only inflation, discarding GDP variations. As a result, the minimum wage has not increased in real terms for three years.
For 2023, the expected minimum wage is R$ 1,302. If the value is confirmed, it will be the fourth year in a row without a readjustment above inflation to the national floor.