[Marxism] Minimum wage increase indicates Lula's problems may be opening for labor

Fred Feldman ffeldman at bellatlantic.net
Sun Jan 29 20:38:54 MST 2006

Brazil's Lula Raises Minimum Wage 17%, Ministry Says (Update3) 

Jan. 24 (Bloomberg) -- Brazilian President Luiz Inacio Lula da Silva
raised the country's minimum wage 17 percent for 2006, more than twice
the increase the government initially proposed. 

Lula will boost the monthly wage to $350 reais ($156), the Labor
Ministry said in a statement posted on its Web site. The agreement,
reached in negotiations with unions including United Workers' Central,
Brazil's biggest labor group, affects 22 million workers and forms the
basis for many government benefits. The increase takes effect in April,
a month earlier than usual. 

``It will have a big effect on the government's books and will be
difficult to absorb,'' said Raul Velloso, an economist with
Brasilia-based ARD Consultores Associados which advises lawmakers on
public finance. ``The government is either going to have to cut spending
somewhere or find a way to increase tax collection.'' 

The percentage increase is more than three times the government's
inflation target for the year. It threatens to spur prices higher and
slow central bank interest rate cuts, said Paulo Leme, chief emerging
markets economist with Goldman Sachs Group Inc. The raise is also
``completely out of line'' with improvements in labor productivity, Leme
said in a telephone interview yesterday. 

The unions were pressing for the raise to begin in April rather than
May, said Arturo Enrique da Silva Santos, general secretary of the
United Workers' Central union. He spoke in a telephone interview from
Brasilia airport after arriving for meetings with Lula. 

``This is the first government that has invited labor unions to
negotiate wage increase,'' said Jose Feijoo, president of the
metalworkers of the ABC region in Sao Paulo state. ``We're very
satisfied with the democratic way of negotiating.'' Feijoo spoke in a
phone interview from Brasilia airport after leaving the meeting with

Unchanged Target 

The 350-real increase will cost the government 4.6 billion reais more
than the 321-real increase proposed in the budget bill, said Carlito
Merss, the sponsor of the budget bill in congress. The government also
will spend another 1 billion reais to accelerate the raise by a month,
he said in a Jan. 19 interview in Brasilia. 

Brazil's 2006 budget bill forecasts the economy will grow 4.5 percent
this year, swelling coffers and allowing the government to finance the
increase without any cut in spending, Merss said, adding the country
will stick to its target of a surplus before interest payments of 4.25
percent this year. 

A higher minimum wage is the best way to help boost economic growth and
redistribute income, Merss said. Unions first demanded an increase to
400 reais, he added. 

The government also agreed to exempt more workers from paying income
taxes, which will lower tax collections by 1 billion reais to the
federal Union, said Beto Albuquerque, the deputy leader of the
government coalition in the lower house, said in a phone interview.
States and municipalities will lose another 1 billion reais in tax
revenue, he added. 

'Expansionary Policy' 

Raising the wage boosts salaries and pensions for many workers and
retirees whose pay exceeds the minimum. Many state salaries, as well as
social welfare benefits, are calculated as multiples of the minimum

``It is another expansionary policy that will make the job of the
central bank to reduce interest rates and inflation a lot harder,'' Leme
said. ``Instead of basically throwing rocks and stones at the central
bank, they should stop and ask what is the contribution of the
president, Congress and politicians for the central bank to have a bit
of room to cut rates,'' 

Brazil's minimum wage has increased an average of 14.6 percent a year
since 1995, including a 15.4 percent rise last year, an 8.3 percent
increase in 2004 and a 20 percent jump in 2003. 

To contact the reporter on this story:

Andrew J. Barden in Sao Paulo at  at barden at bloomberg.net

Katia Cortes in Brasilia at  at kcortes at bloomberg.net
Last Updated: January 24, 2006 18:26 EST 

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