World News

Brazil hikes minimum wage more than expected, eyes extra fiscal discipline as a result

BRASILIA (Reuters) – Brazil’s minimum wage will be increased to 1,039 reais ($258) a month in 2020, the government said on Tuesday, a higher level than it had previously forecast that will require even tighter controls on spending to ensure its fiscal rules are not broken.

The new minimum wage, provisionally signed into law by President Jair Bolsonaro on Tuesday, is 4.1% higher than this year’s 998 reais, and more than the 1,031 reais the government had originally included in its 2020 budget proposals.

The increase is due to the recent surge in meat prices, which lifted the rate of inflation against which the minimum wage is indexed, the Economy Ministry said.

“Because the new value is higher than previously estimated, further budgetary adjustments will be necessary to avoid jeopardizing our primary deficit and spending ceiling targets,” Waldery Rodrigues, special secretary to the Economy Ministry, said in a statement.

The government estimates that for each 1 real increase in the minimum wage, public spending on pensions and other benefits will increase next year by approximately 355.5 million reais, the ministry said.

Reducing the budget deficit has been the government’s No. 1 economic priority this year, and it has used and proposed a raft of measures to reduce, cap and monitor spending.

The most notable of these was a sweeping reform of the country’s pension system that will save the public purse over 800 billion reais ($200 billion) over the next decade by raising the minimum retirement age and workers’ pension contributions, as well as closing loopholes.

Official figures on Monday showed that a broad measure of the public sector deficit as a share of the economy shrank in November to its smallest in over a year, while the national debt fell for the third month in a row, which has not happened since 2011.

(Reporting by Jamie McGeever; Editing by Dan Grebler)

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