Brazil’s Senate on Thursday approved President Luiz Inácio Lula da Silva’s proposal to raise the minimum wage and income tax threshold.
The new rule, which the government sent to Congress in May, establishes a 1.4 percent increase of the minimum monthly wage to BRL 1,320 (USD 265) — above last year’s inflation rate.
It also stipulates that citizens earning up to BRL 2,640 a month — i.e., twice the minimum wage — will be exempt from paying income tax. The current threshold sits at BRL 1,904.
To compensate for the loss in tax revenue, the government plans to increase taxes on exclusive funds (most commonly known as “super-rich” funds). The intention, at first, was to apply taxes to offshore investments, which do not have a particular tax regime of their own, but that proposal faced opposition from lawmakers.
During his push to raise the minimum wage, Lula stressed that it would be the first real increase above inflation in six years. The income tax threshold had also not been adjusted for inflation since 2015, resulting in millions more Brazilians having to pay income tax.
Both moves are part of Lula’s broader plan to “bring poor Brazilians into the budget.” The initiatives aim to stimulate the economy at a time when it faces a challenging scenario combining the world’s highest real interest rates, rising debt and default rates, as well as elevated unemployment.
While well-intentioned, the measures will put immense pressure on the government’s accounts. Each BRL 1 added to the minimum wage generates an impact of BRL 368 million for the state, as welfare benefits and pensions are pegged to it.
Even so, the proposals met with little resistance in Congress. Only one member of the House voted against it on Wednesday (and he claimed he had voted by mistake), while the Senate did not even require a roll-call vote.
Had the proposal not been approved today, the measure would have expired on August 28, meaning it ran close to the 120-day deadline for these so-called “provisional decrees” to be approved by Congress.
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