In a speech to commemorate Labor Day, President Luiz Inácio Lula da Silva announced on the night of this Sunday, 30, that he will send to Congress, in the next few days, a bill to make permanent the policy of valuing the minimum wage. Upon confirming that the new minimum goes, as of tomorrow, from R$1,302 to R$1,320, Lula said that the national floor will be readjusted every year above inflation.
The president also highlighted that, from now on, there will be exemption from Income Tax for those who earn up to two minimum wages (R$ 2,640). Lula’s pronouncement, on national radio and TV, lasted three minutes and was the first since he assumed his third term, on January 1st.
The new rule for the readjustment of the minimum wage resets inflation by the National Consumer Price Index (INPC) and includes economic growth, with the result of the Gross Domestic Product (GDP) consolidated for the two previous years. Lula said that, by the end of his mandate, the policy of valuing the minimum wage “will once again be a great instrument of social transformation that it was in the past”.
The minimum wage appreciation policy, with readjustments based on the price index and GDP variation, was in effect between 2011 and 2019, but the minimum wage did not always rise above inflation. In 2017 and 2018, for example, the readjustment was granted only based on inflation because the GDP of previous years (2015 and 2016) shrank.
The minimum wage has not had a real increase for six years. Under the slogan “Brazil is back”, the president said that since the first day of his third term he has “worked to repair and rebuild our country”. Lula recalled the accomplishments of when he assumed the Presidency for the first time and criticized the last governments. “Everything has gotten worse in recent years. The job disappeared. Wages have lost purchasing power. Inflation rose. Interest rates skyrocketed. Rights won over decades were destroyed overnight,” said Lula. “Fortunately, that bad weather is in the past. Brazil has once again recognized the fundamental role of working people in building the future of Brazil.”
According to the government, the minimum wage appreciation policy will be sent in two formats: the value of R$ 1,320 will be set by means of a provisional measure, and the policy of permanent appreciation of the minimum wage will be established by a bill. Both proposals need congressional approval, but the new minimum wage will come into effect immediately.
Income Tax Exemption
After much discussion with the economic team, Lula confirmed that the Income Tax exemption for those earning up to two minimum wages (R$ 2,640) – as anticipated by the Estadão on February 4th – starts May 1st. The exemption for those earning up to R$5,000, a campaign promise, will be gradual until 2026, when the third term ends, according to the president.
Today, the IR exemption range is up to R$ 1,903.98 (value in force since 2015) per month. The government announced that this threshold will increase to R$2,112 as of May 1st, and there will be a monthly discount of R$528 direct at source – that is, on the tax that is withheld from the employee. With that, adding the two mechanisms, whoever earns up to R$ 2,640 will not pay income tax – neither at source nor in the annual adjustment statement.
According to calculations by the Federal Revenue Service, around 40% of taxpayers – or 13.7 million people – will stop paying income tax as of next month. You will not need to do anything to secure the exemption. Until May, the Revenue systems will be updated to allow the automatic granting of the BRL 528 discount.
As the IR table is progressive, all workers, regardless of salary, will stop paying tax on the R$ 2,112. The R$528 direct-at-source discount cannot be accumulated with other deductions, such as social security contributions, alimony and dependents. Whichever is most advantageous to the taxpayer will apply.
Therefore, the assessment is that the mechanism will be more advantageous for lower income brackets, since salaries above R$ 5,020 already collect a contribution amount greater than the new simplified deduction to the National Social Security Institute (INSS).
This Monday, the 1st Lula must participate in an act promoted by the union centrals in Vale do Anhangabaú, in São Paulo, to celebrate Labor Day.
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