Brazil minister recants minimum-wage plan aimed at cutting budget

By Jeb Blount

RIO DE JANEIRO (Reuters) - Brazilian President Dilma Rousseff's promise to cut spending during a second term that began Thursday got off to a rocky start, as her new planning minister recanted a pledge to change how the country's minimum wage is calculated.

Minister Nelson Barbosa had told reporters on Friday, his first day in the post, that he planned to send Congress a bill changing the formula to be used to adjust the minimum wage starting in 2016. But a day later he published a note on the ministry web site saying the current formula will be maintained.

Barbosa was forced to backtrack after Rousseff received complaints from unions and ordered the retraction, newspaper O Globo reported.

Calls to the planning ministry outside normal business hours were not answered. The ministry press office did not immediately respond to an e-mailed request for comment.

The minimum wage formula, based on the increase in consumer prices plus the increase in gross domestic product for the last two years, has sought to grant low-wage earners an economic boost that outstrips inflation.

Those adjustments, though, impact more than the wage of low-income workers. Since pensions and some government salaries are based on multiples of the minimum wage, increases of the latter can cascade through the government's budget, boosting mandatory entitlement spending and stoking inflation.

With the vast majority of Brazilian spending going on government salaries and mandatory entitlements such as pensions, many economists say controlling minimum wage increases, or changing the way they impact pensions, are essential to any effort to reign in spending.

Barbosa was brought in by Rousseff as one of a group of supposedly market-friendly finance, economics and central bank officials who would be able to control spending and regain investor confidence as Brazil's economic growth slows to a crawl.

Using the current formula, Rousseff is expected to announce an 8.8 percent increase in the minimum wage for 2015 to 788 reais (191 pounds) a month from 724 in 2014. The new wage is equivalent to an annual salary of 10,480 reais a year when mandatory annual and holiday bonuses are included.

All Brazilian workers also have the right to a month of paid vacation.

(Additional reporting by Aluisio Alves in Sao Paulo; Editing by David Holmes)