Lula and Rodrigo Garcia attack Bolsonaro’s fuel subsidy

The Bolsonaro government’s fuel subsidy proposal, which includes the reduction of ICMS (Tax on the Circulation of Goods and Services), was the target of attacks this Wednesday (8) by political opponents.

A possible direct competitor of President Jair Bolsonaro (PL) in the presidential elections, former President Luiz Inácio Lula da Silva (PT) stated that the government’s proposal to reduce the ICMS on fuels will not result in a reduction in the price of gasoline and cylinders of fuel. gas.

He also said that President Jair Bolsonaro (PL) does not have the “courage” to determine the reduction of fuel prices with Petrobras.

“The increase in gasoline at international prices was not done with a vote in Congress, it was penned by Pedro Parente [ex-presidente da Petrobras na gestão Michel Temer]. If to raise the price of fuel and convert it to the international price it was a pen stroke, for you to take it out it can also be a pen stroke. The president, if he had the courage and wasn’t a braggart, a liar, he would have done it already”, said Lula.

A similar solution, of using the position of control over the state-owned company to reduce prices, was defended on a social network by the governor of São Paulo, Rodrigo Garcia, from the PSDB. “It is essential that the government set an example and start doing this for Petrobras, which is in charge of the price of fuel. Wanting to reduce prices starting with ICMS is like putting the patient to see the doctor”, wrote the toucan.

Lula, in an interview with the Itatiaia Vale do Aço radio station, from Timóteo (Minas Gerais), on the morning of this Wednesday, said: “You will see that all this ICMS reduction fight will not result in the pump, in the gas cylinder and in the diesel . what he [Bolsonaro] it’s building up in anticipation. He would make it much simpler if he had the courage to call Petrobras and say that it is necessary to stop. The same pen he signed for us to internationalize the price [dos combustíveis]the same pen can make the decision not to internationalize”.

The PT also said that Bolsonaro “wants to blame the governors” and that, by changing the ICMS, “municipalities will lose money”.

“And with that, education and health will lose money. As you reduce ICMS for the government, you will reduce the municipalities’ money. To benefit people who have cars, who are not the majority, who use gasoline, the president will play the weight of guilt throughout Brazilian society,” he continued.

“When he [Bolsonaro] says he will make compensation, he will make it until December. After December I want to know who will pay for the lack of collection from the municipalities”, continued the PT.

The toucan governor of the state of São Paulo took the opportunity to draw attention to recent data that show the difficulty of a significant portion of Brazilians to nourish themselves.

“It is necessary that the federal government do everything to reduce the price of fuel and help control the inflation of food that brings hunger and misery to people”, he wrote on social media.

What is the government’s proposal?

The package announced by Bolsonaro provides for the reduction to zero of PIS/Cofins and Cide rates on gasoline and ethanol. In the case of pure gasoline, R$ 0.89 per liter is currently charged, with R$ 0.79 for PIS/Cofins and R$ 0.10 for Cide. In ethanol, there is only incidence of PIS/Cofins, in the total amount of R$ 0.24 per liter.

Another front is the reduction to zero of ICMS, a state tax, on diesel and cooking gas, through a compensation to be paid by the Union.

How should ICMS reduction work?

Congress is discussing a supplementary bill that intends to set a ceiling of 17% for the state tax rate on fuel and energy, incorporating a decision already rendered by the Federal Supreme Court (STF) that these items are essential goods and, therefore, cannot be taxed above the state modal rate. Today, there are those who charge 25% on diesel and 34% on gasoline.

The federal government wants the revenue losses from this change to be absorbed by the states themselves. In practice, the drop from a rate of 34% to 17%, for example, would not be compensated by the Union. Governors resist this.

Additionally, the government proposes that, by the end of the year, the ICMS rates on diesel and cooking gas be zeroed. For this, the Union would pay compensation, proportional to the loss of collection in relation to the 17% ceiling. The estimate is that this amount will be R$ 25 billion.

What might the impact of the ICMS cut be?

A preliminary idea of ​​what may be the impact on the pump resulting from the reduction of ICMS is the calculation made by the states when there was the regulation of the law that determined the change of the state tax. They estimated that, keeping the current collection, the ad rem rate (measured in reais per liter) would be between BRL 0.50 and BRL 1 per liter of diesel, depending on the state (in São Paulo, it would be close to BRL 0.66). That would be the potential size of the reduction.

Why is it necessary to approve a PEC?

The transfer of resources to the states would be subject to the spending ceiling, a fiscal rule provided for in the Constitution that limits the advance of expenses to the variation of inflation. Recently, the government had to cut R$ 7 billion from ministries and extinguish a reserve of R$ 1.7 billion for salary readjustments, precisely because other mandatory expenses grew more than expected. That is, there is no space left on the ceiling.

The PEC will authorize the transfer to be made outside the expenditure ceiling. It must also remove other restrictions provided for in the LRF (Fiscal Responsibility Law) and in the electoral law.

When will the impact of the measures be felt by consumers?

First, the initiatives depend on the approval of the National Congress. The bill on ICMS is already being processed, but the PEC has not yet been formally filed.

After the approval of these measures, Brazilians may still take some time to feel the impact in their pockets. This is because fuel taxes are paid at the distribution stage, not by the stations that sell to consumers.

Therefore, any changes will only take effect when the dealer (gas station) receives a new shipment of the product invoiced according to the latest rules—ie zero taxation. The effect, therefore, is not immediate.

Will the price reduction be equivalent to the tax cut?

Not necessarily. While the government’s intention is to provide relief to consumers, there are factors that can limit this pass-through. One of them is the decision of distributors and resellers to increase their margins, causing part of the reduction to be absorbed in the form of profit along the chain.

Another risk is that Petrobras will announce a new fuel price readjustment before the tax exemption reaches its peak. In this case, it is possible that government measures only dampen the company’s increase.

This possibility exists because the lag of fuel prices in relation to the international market has increased. According to Abicom (Brazilian Association of Fuel Importers), this difference is 15% for gasoline and 13% for diesel.