Labor Day, the government announces an increase in the minimum wage and a tax on financial investments. It happens in Brazil

The Brazilian government led by the progressive president Luiz Inacio Lula da Silva decided on a small increase in the country’s minimum wage. 18 real more which raises the salary threshold from 1,302 a 1.320 reali.e. approx 240 euro. The ruling was published yesterday, on workers day, with an extraordinary issue of the Official Gazette. The increase was originally scheduled for the beginning of the year but was then postponed by four months for lack of financial coverage and had risked slipping to 2024. “It is a small increase but higher than inflation and it is the first in six years”, said Lula, underlining the intention to use the minimum wage as a tool of social transformation, as it was in the past, when it rose significantly more than inflation thus allowing millions of Brazilians to escape poverty. The government has managed to find the resources with a review of the distribution of guaranteed assistance to families most in difficulty with the programme Bolsa Familia and the elimination of beneficiaries in situations of irregularity. The government also announced the increase to 2,640 reals per month (from about 1,903 reals) of the income that is not subject to any taxation. The threshold should be further increased to 5 thousand reals by the end of his administration in 2026.

At the same time, the executive decided to tax capital income deriving from financial investments abroad and which belong to Brazilian residents. Income earned overseas will be taxed upon sale or maturity, while profits and dividends will be taxed on 31 December each year. The provision also provides for the taxation of assets assigned by a trust, a British legal institution which essentially allows for separation ownership of assets by who actually owns it. Earnings of up to 6,000 reals (about 1,100 euros) will be tax-free, while those above this threshold but less than 50,000 reals will suffer a 15% levy. Above 50,000 real the rate rises al 22,5%. The Ministry of Finance calculates a potential jet of 3.2 billion reais (630 million euros) in 2023, almost 3.6 billion real in 2024 and 6.7 billion in 2025. The provision was published in an extra edition of the Official Gazettebut Lula didn’t mention it during his Labor Day speech.

Left-wing economic team Lula stressed that the government will try to keep public finances in order mainly by recovering tax evasion. The Minister of Finance fernando haddad has so far been rather austere in the management of the Brazilian coffers, attracting criticism from a part of Lula’s party but reassuring the markets whether government programs will be applied in a way that is sustainable for public finances. Since the beginning of 2023, the real has strengthened against the dollar by about 7%. In the meantime, criticisms of the government are multiplying Brazilian central bank for the decision of keep rates at 13.75% despite the slowdown in inflation, now at 4.7%.

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