Government studies using BRL 20 billion from the Union for states to zero ICMS on diesel and gas

The PEC (Proposal for Amendment to the Constitution) under evaluation by the Jair Bolsonaro (PL) government to combat the rise in fuel prices should provide for a transfer of about R$20 billion from the Union to the states in exchange for them to reset the tax rates to zero. ICMS on diesel and cooking gas, according to government sources heard by Sheet.

The proposal is one of the options on the table to be activated in an attempt to lower prices at pumps in the year Bolsonaro seeks re-election, and began to be studied amid pressure from allies for an alternative to contain values. It is also an alternative to the public calamity decree, a more drastic measure that faces greater resistance from technicians for being able to open the gates to unrestricted spending.

The exemption from the state tax would be valid until the end of this year, as has already occurred in the case of PIS and Cofins – which are federal contributions. The transfer of resources to the states would take place outside the expenditure ceiling, a rule that prevents expenditures from growing above inflation.

To finance the transfer to the states, the government’s strategy is to use the dividends paid by Petrobras to the Union – which would feed the president’s political discourse that the company’s resources are being returned to the population.

Record profits last year and the first quarter of 2022 already secure around R$25 billion in dividends to the Treasury in 2022, and the figure could get even higher with more funds arriving in the coming months.

The exemption from ICMS – which includes the PEC under study and the project already approved in the Chamber with a ceiling of 17% to 18% for the state tax on items such as fuel and energy – is defined by government officials as a “shot of cannon”. The measure would allow a relief in the price of diesel and cooking gas at a time when Bolsonaro follows in second place in the polls, behind former president Luiz Inácio Lula da Silva (PT).

A preliminary idea of ​​what may be the impact on the pump resulting from the rates cut to zero is the calculation made by the states when there was the regulation of the law that determined the change in the collection of the state tax. Using this estimate, the reduction could be between R$ 0.50 and R$ 1 per liter of diesel, depending on the state. In São Paulo, the reduction would be close to R$ 0.66.

On the other hand, there is also the recognition that the immediate effect of the price reduction may later be nullified by eventual readjustments announced by Petrobras.

According to sources heard by the report, the president of the Chamber, Arthur Lira (PP-AL), supports the idea of ​​using Petrobras dividends to finance some measure that results in price reduction.

The government, in turn, sees in Lira the support it needs to go ahead with the PEC, despite the tight schedule playing against the chances of approval. This type of proposal takes longer to process and requires the support of 308 of the 513 deputies and 49 of the 81 senators.

Therefore, discussions are still ongoing and there is no final decision on which measure will actually be adopted. The payment of a voucher to truck drivers is also included in the options menu.

On the economic side, there is resistance to the PEC, but the assessment is that, given the growing pressure, Minister Paulo Guedes (Economy) may end up adopting pragmatism and embracing the proposal, given that it is considered the “least worst” among those that are being considered. Contrary to the calamity, the PEC can stipulate in its text a limit for extra-ceiling spending, giving some predictability.

Furthermore, a change in the Constitution is considered the safest way to ensure the transfer outside the spending ceiling without leaving room for questioning and without running into restrictions of the electoral law. Despite this, the legal issue is still under analysis by the government.

The calculations of the transfer to the states are still being closed by the economic team, but the value can be between R$ 20 billion and R$ 22 billion to zero the rate.

The figure corresponds to what would be the collection of the states with the rate of 17% to 18% (ceiling foreseen in the project that is already being processed in Congress) of ICMS on diesel and gas. The states, which currently charge rates of 12% to 25% on diesel, have resisted the proposal and are negotiating changes.

In the economic area, technicians remain opposed and try to reduce the bill.

The possibility of the government betting on a PEC to pave the way for measures to combat the rise in fuel prices was anticipated by the Sheet.

The option of the public calamity decree ended up losing strength amid the bad repercussion of the negotiations. However, the president has not given up on seeking a solution to the issue of inflation – which worries his campaign team and is seen as the main obstacle to reelection.

The main reference for the discussion is the device of the former emergency PEC, converted into a constitutional amendment in March 2021 and which allowed the extension of aid to the vulnerable.

The government, which had not secured resources for Covid-19 in the 2021 Budget, opted for a PEC to authorize new extra-teto spending. The text allowed the recreation of emergency aid and established a limit of R$ 44 billion for the measure.

The discussion comes at a time when Guedes is under pressure to offer a way out. According to politicians close to the president, if there is no solution for fuel, there may be a new offensive to remove him from office. There is a reading that lethargy in the economy could compromise Bolsonaro’s reelection project.

A new edition of Datafolha showed an expansion of Lula’s advantage over Bolsonaro in the voting intention survey. The PT appears with 48% in the first round, compared to 27% for the president.

The calendar has been an opponent of the Planalto’s intentions to remove from paper some measure that contains the price of fuel. Even the change in command of Petrobras has not yet been carried out and should take some time to come out. The shareholders’ meeting is only held 30 days after being called, which, in turn, depends on the submission of government nominations to the board of directors.

In Congress, government allies are emphatic in saying that the government needs to take some action to not let the bill for the increase in fuel and energy tariffs fall on the pockets of the poorest. In recent days, allied leaders have already advocated a new change in the spending ceiling.

Questions and answers

What is the impasse over fuels?

Government members and allies in Congress defend a subsidy from the public coffers to cool fuel prices. But there is no room in the spending ceiling — a rule that prevents federal spending from growing above inflation.

Why did a decree of calamity begin to be discussed?

In this case, the Union is authorized to adopt an extraordinary tax regime, with more flexibility to spend. But, at the same time, some restrictions come into effect, such as a ban on readjustments in the salaries of federal servants (counterparts added to the Constitution in 2021). In addition, the measure is feared by the economy for representing a blank check for spending.

Why is a PEC now discussed?

With the problems seen in an exit via a calamity decree, a PEC (proposed amendment to the Constitution) began to be considered. In this case, the government and Congress would have the advantage of the solution overlapping the Electoral Law or the Fiscal Responsibility Law. In addition, the PEC gives the chance for the release of spending to be limited to a specific scope (instead of releasing unrestricted spending).

What is the rite of a PEC?

Government or Congress may propose a PEC. It is discussed and voted on in two rounds in each House of Congress and is approved if it has three-fifths of the votes of deputies (308) and senators (49).