Opinion – Marcos Mendes: Fuels and electoral opportunism

The rise in fuel prices, and in inflation in general, in the midst of the electoral campaign, generated an escalation of political conflicts and dangerous proposals.

Let’s forget for a minute the electoral context, and let’s think about what would be the most appropriate public policy, taking into account the well-being of the population in the short and long term. We are facing an international price shock, which makes consumers around the world poorer, and transfers income to oil producers and their governments.

Given that the Brazilian government is receiving additional income from this rise in prices, the most that can be done is to use part of this gain to transfer to the poorest, minimizing their losses.

One possible solution is to do nothing. Given that Auxílio Brasil has already tripled the volume transferred, in relation to what Bolsa Família did, it can be argued that this transfer is already underway. But it is legitimate to argue that this is still not enough. In this case, it would be necessary to expand transfers.

Even disregarding electoral interests, it is important to say the limits of this income transfer. It must be in cash, for the poorest, in order to alleviate extreme poverty. We are not rich enough to subsidize fuel for everyone. We also shouldn’t do it because we would be encouraging the consumption of a scarce good, which would stop encouraging the efficient use and search for alternative fuels by companies, prolonging and amplifying the problem.

However, to spend more on transfers to the poor, it would be necessary to open an escape valve in the fiscal rules, issuing the so-called “extraordinary credits”. The fear of the economic team is that it will not be possible to limit these credits, and the gates will be opened to the flood of pressure from electoral spending. Including general fuel subsidy.

Then come the dangerous ideas. The first is to throw the bill to Petrobras, restricting price adjustments. This was done in the PT government, it caused enormous damage to the company and the country. Bolsonaro signals that he wants to do the same. If it succeeds, it will lead to a lack of fuel, as importers will cease their activities to avoid losses. Expensive fuel is bad, non-existent is worse.

Another idea is to limit ICMS taxation on fuels. In fact, taxing fuel at rates that exceed 30% is an exaggeration. But dropping those rates to 17% overnight will have consequences. States and municipalities will lose more than BRL 80 billion a year in revenue.

Opportunistically, Congress, on the one hand, demands sacrifice from governors. On the other hand, it does not stop approving measures that increase the costs of states and municipalities.

This year, the readjustment of the minimum salary for teachers was 33%. There is something very wrong with a law that mandates such an adjustment, but Congress refuses to review it. In the same vein, the floor for health agents and, soon, for nurses was approved. Congress approves, states and counties foot the bill. This will turn into a fiscal crisis, and generate more problems ahead.

Then, a third and even worse idea arises: to remove the oil revenues received by the Union from the budget, and use this money, as if it were a private fund, to reimburse the states for the losses resulting from the reduction of ICMS. This undermines a basic principle of public finance: the unity of the budget. All public revenues must be within the budget to be allocated according to priorities and in a transparent manner.

In addition, states are adept at judicializing their relations with the Union, and they always find support in the STF. This type of background will become “backgroundless”. A high fiscal risk.

There is a hyperactivity of politicians to show service, win electoral points and push the bill forward. Decisions are made, in the three powers, in a fragmented, conflicting way, without technical basis, with a focus on the short term and without concern for side effects.

Economic stagnation is the price we are paying for having adopted this behavior in recent years. Apparently, we will continue to pay dearly. And not just for fuel.