Lula pledges to raise minimum wage and income tax threshold

Lula promised to raise the minimum wage by 1.38 percent. Photo: Ricardo Stuckert/PR

President Luiz Inácio Lula da Silva on Thursday pledged to raise Brazil’s minimum wage by 1.38 percent to BRL 1,320 (USD 251) in May. He also promised to raise the income tax threshold by almost 39 percent, to twice the new minimum wage.

Lula told CNN Brasil anchor Daniela Lima that his administration will reinstate the rule by which the minimum wage is adjusted annually according to both inflation and GDP growth. The same rule was enforced during the Lula, Dilma Rousseff, and Michel Temer administrations to make sure minimum salaries would increase above inflation. The custom was struck down by Jair Bolsonaro between 2019 and 2022.

Raising the minimum wage and reinstating a new annual adjustment rule were among Lula’s campaign promises in 2022. Since taking office, he suggested that possibility on multiple occasions but had fallen short of giving himself a deadline until today.

The move could result in a hit to the federal budget of as much as BRL 15 billion, according to estimates by digital bank Inter — almost double the government’s preliminary calculations. The move affects not only active workers but also pensioners, as social security benefits are pegged to the minimum wage.

Raising the income tax threshold to BRL 5,000 (USD 952) was another of Lula’s campaign pledges. He has now promised to raise it to a little over half that value this year, and gradually increase it over the following years “until we reach the BRL 5,000 threshold.”

The income tax threshold has not been adjusted for inflation since 2015, resulting in millions more Brazilians having to pay income tax. In September 2021, the House approved a bill raising the threshold to BRL 2,500, while also charging taxes on dividends. However, the bill has stalled in the Senate.

Market agents have raised concerns over Lula’s plan for the income tax threshold. Household surveys show that roughly 90 percent of Brazilian workers earn less than BRL 3,500 a month. The number of income taxpayers could drop from 31 million to less than a quarter of that total, per some estimates.