Economy seeks to contain bill with fuel subsidies

After giving in and opening the federal coffers to subsidize the price of fuel in an election year, the Ministry of Economy carefully monitors the next steps of the National Congress in the discussion of proposals to prevent the bill from getting even higher.

The measures agreed so far have a total impact of BRL 42.5 billion by the end of the year, according to government sources interviewed by the Sheet. The amount includes the cut of federal taxes on gasoline and ethanol and a transfer of R$ 25.7 billion to states and municipalities to compensate for the reduction to zero of ICMS on diesel and cooking gas.

Behind the scenes, however, technicians are cautious about the prospect of the value growing if governors press for greater compensation. The Federal Executive is already acting to prevent this from happening.

Despite the governors’ complaints about the project’s impact, lawmakers recognize that it will be difficult to stop a project that has the potential to provide some price relief.​

Interlocutors report that, in the internal negotiations, Minister Paulo Guedes (Economy) established a limit of R$ 50 billion for the set of measures.

To closely monitor the progress of the negotiations and avoid the expansion of the bill, Guedes canceled a trip he would make this Tuesday (7) to Paris, where he would participate in a meeting of the OECD (Organization for Economic Cooperation and Development).

At other crucial moments, such as the negotiation on the amount paid to families through Auxílio Brasil, which resulted in the change in the spending ceiling (a fiscal rule that limits the advance of expenses to inflation), the Minister of Economy was out of the country and ended up being run over by other assistants of President Jair Bolsonaro (PL).

The amount reserved for actions to combat the rise in fuel prices is already considered high. The amount is equivalent to almost half of the entire annual demand of the Auxílio Brasil program (of R$ 89 billion).

The transfer of resources to the states depends on the approval of a PEC (proposed amendment to the Constitution) which will have the rapporteurship of Senator Fernando Bezerra (MDB-PE). According to the congressman’s allies, the discussion about compensation has been at R$ 25.7 billion.

At the federal level, cutting PIS and Cofins should cost R$ 12 billion in the case of gasoline and R$ 3.3 billion in the case of ethanol. The reduction of Cide on gasoline should have an impact of R$ 1.5 billion.

One possibility is to include the reduction of these rates until the end of the year in the bill that deals with the ICMS limit on fuels and energy, whose rapporteur is also Bezerra. The same model was adopted in March, when a bill negotiated between the government and Congress changed the collection of state tax and, at the same time, zeroed the PIS and Cofins rates on diesel.

The bill classifies items such as fuel and energy as essential goods and services and, as a result, seeks to establish a ceiling on the ICMS rate applied to them.

The project piggybacks on a decision by the Federal Supreme Court (STF) that demanded that essential items cannot be charged more than the basic rate applied by the state. Some governors charge up to 25% on diesel and 34% on gasoline (while the basic ICMS is 17% to 18%, depending on the state).

The creation of an ICMS ceiling on these items will not be compensated by the Union. What will be compensated is the reduction of the ceiling from 17% to zero in the rates of diesel and cooking gas until the end of the year.

In Economics, the expectation is that both the PEC and the project will be approved within a week in the Senate. In an interview this Tuesday, Bezerra reinforced this deadline and said that he will still present a second PEC, with the objective of maintaining the competitiveness of ethanol after the reduction of taxes on gasoline.

The Senate president, Rodrigo Pacheco (PSD-MG), said that the bill that blocks the ICMS on fuel and energy should be voted on next Monday (13), but he did not commit to deadlines for the consideration of the Fuels PEC.

“The PECs, once formalized and having procedural conditions, with sufficient signatures for processing, then we will evaluate the moment for their appreciation, if they should go through the CCJ [Comissão de Constituição e Justiça] or if they will go straight to the plenary”, said Pacheco.

After approval in the Senate, both proposals will still have to go through votes in the Chamber of Deputies.

The concern within the government is to get speedy approval. Bolsonaro is in second place in polls, behind former president Luiz Inácio Lula da Silva (PT). Members of the current chief executive’s campaign have already warned that the price of fuel is a major obstacle to his re-election.

Proposal sets precedent for billionaire transfer to president and governors in election year

Despite the rush, the debate around the PEC is considered challenging. Although the instrument provides security from a legal point of view for technicians to sign the documents with the release of funds, there is concern about the precedent created. In practice, Congress will authorize a billion dollar transfer to states in the year in which both president and governors will contest elections.

The proposal will also need to remove provisions from the LRF (Fiscal Responsibility Law) and the Constitution to allow the exemption of federal taxes and the transfer to states outside the spending ceiling (which prevents the real growth of federal expenses). Another relevant discussion is whether the money transferred to the states will be shared with the municipalities, as is the case with ICMS.

In an interview this Tuesday, the president of the Chamber, Arthur Lira (PP-AL), estimated at R$ 65 billion the extraordinary revenues obtained by the government that could help to finance the set of measures against the rise in fuels – not counting the gains with oil royalties, which are also on the rise. That is, more than the R$ 50 billion ceiling that Guedes works with for the set of measures.

In Lira’s calculations, it would be BRL 40 billion in extra dividends from Petrobras and BRL 25 billion collected from the capitalization of Eletrobras.

The president of the Chamber stated that, if there is an agreement with the opposition, the PEC can be taken directly to the plenary. If this is not possible, he promised to speed up the proceedings in the House.

“These PECs will be voted on even before the recess [de julho]. Let’s suppose that the PLP 18 is voted [projeto que limita o ICMS em 17%] on Monday and the government sends the text of the PEC on Monday, we send it to the [Comissão de] Constitution and Justice, there must be an effort, to approve it quickly, create a special commission”, he said.

as anticipated the Sheetthe PEC to subsidize fuels emerged as an alternative to the public calamity decree, which was once again defended by the political wing of the government, but faced resistance from technicians in the economic area.

This Tuesday, Bolsonaro highlighted, however, that the possibility of declaring calamity is not ruled out.

“It’s not buried [o decreto de calamidade]. It’s there, it’s a weapon you have and you can press the button whenever you want. At this point, it was studied and we came to the conclusion that it was not the case to tighten the calamity decree”, said the president, citing consequences such as the ban on granting readjustments to servers.