BRASILIA, Nov 24 (Reuters) - Brazil is considering a delay to minimum wage increases next year to relieve pressure on its overdrawn public accounts even though the move would be unpopular and would require a change in legislation, three sources with knowledge of the discussions said on Tuesday.
Facing a crippling recession President Dilma Rousseff is scrambling to plug a widening fiscal deficit as part of her quest to regain investors’ confidence in the once buoyant economy.
Her economic team is analyzing a proposal to delay for several months the readjustment of the minimum wage in January, which would add 40 billion reais ($10.82 billion) in extra expenditures next year, a Rousseff aide told Reuters. The minimum wage is linked to a series of pension and unemployment benefits, meaning that any increase significantly raises public expenditures.
The current law mandates the government hikes the minimum wage each year in January by inflation of the previous year and economic growth of two years before.
Even with the prospect of immediate savings, delaying the readjustment will be too costly politically for Rousseff, whose popularity is the lowest for any Brazilian leader in 30 years, said the aide and another official briefed on the matter.
“It’s just too difficult and I don’t believe this will move forward,” said the second official, who asked for anonymity to speak freely.
A delay would also likely require changing the legislation at a time when tensions between Rousseff and her widespread alliance in Congress remain high, said a third legislative source who participated in talks with government officials over options to bolster savings.
Many ally lawmakers oppose Rousseff’s unpopular austerity drive ahead of municipal elections next year that could reshape Brazil’s regional political map.
Brazil’s fiscal woes have triggered a slew of rating downgrades that threaten to further sink an economy heading for what many experts expect to be its longest recession since the 1930s.
A surge in public spending and hefty tax breaks during Rousseff’s first term in office deteriorated the public accounts, resulting in two years of primary budget deficit. The primary balance, or savings prior to debt interest payments, is considered a key gauge of a country’s financial health.
Even if Rousseff is able to squeeze out a small primary surplus next year, its overall budget balance is expected to remain above 9 percent of its gross domestic product. ($1 = 3.6973 Brazilian reais) (Reporting by Alonso Soto)