Opinion – Helio Beltrão: ICMS ceiling is good, bad and ‘just right’

Congress is working hard to approve PLP 18, which establishes a ceiling of 17% or 18% for charging ICMS on fuel, energy, telecommunications and transportation, as well as supplementary PECs on the same topic.

On the one hand, there is a demand from society that “something needs to be done” (the most dangerous words in the hands of politicians) about the high price of these items, which make up a significant part of the cost of all consumer products. On the other hand, there is a concern about the public accounts of states and municipalities, as well as electoral and populist motivations attributed to Congress and the Executive. All true, and all troubling.

The inflation dragon continues to run wild. Among the items that have most eroded the purchasing power of the population are fuel and energy. Gasoline, for example, increased 29% in the last 12 months, much more than the IPCA (12%). In Rio, where the ICMS is higher, it is around R$ 8.50 per liter.

The so-called “poverty index” — the sum of inflation and unemployment rates — has remained at the highest level in the last 15 years, above 22 points, despite the impressive recovery in employment in recent months. And the “poverty index” is the biggest opponent of candidates for reelection.

The rise in fuel prices is the result of a mix of factors, including: a) the huge monetary injection in 2020 and 2021 —the main cause of inflation and the rise in the dollar— and b) the escalation of oil prices and derivatives on the market International.

President Bolsonaro has long been trying to constrain Petrobras to hold prices and abandon the policy of international price parity. It wasn’t successful, thankfully. In addition to the losses to minority shareholders, there would be a breakdown to supply the Brazilian market, which needs to import around 20% of the consumption of derivatives.

The government then decided to take advantage of the most harmful feature of inflation: the huge transfer of resources from the taxpayer to the government. Inflation is very friendly to public accounts, as it inflates revenue (the April result was the best since 2011). The phenomenon largely explains why the federal government’s gross debt has returned to its pre-pandemic level, below 80% of GDP, surprising those analysts who did not experience the 1980s.

With the help of inflation, the collection of the states of the Federation can grow around R$ 190 billion in 2022, or about 20% (compared to less than 10% of the projected IPCA). With PLP 18, the states claim that they would lose R$ 80 billion per year. However, despite this loss, net revenue may grow faster than inflation. The good news is that it doesn’t turn into an increase in the payroll.

A frequently asked question is whether the PLP 18 will really lower the price at the pump. No doubt the price will be lower than if there were no measurements. The international price of oil products (and, consequently, the Petrobras refinery price) varies continuously and will continue to affect prices at the pump, but it is an independent phenomenon, which overlaps with the price-reducing effect of the PLP.

The calculations announced by the government of an immediate reduction, on the “next day”, of the price at the pump, however, are speculative and optimistic. The president’s appeal to summon Brazilians to monitor prices at pumps, Sarney-style, takes a populist and dangerous path.

Compensation to states promised by the government will represent another hole in the ceiling, which will need to endorse that extra revenues (exceeding the budget) can be used to finance tax cuts.

In short, the measure is a bit of everything: it helps the citizen, it is electoral and harms public accounts. It is democracy functioning like the textbook.