Lula’s team prepares MP to extend fuel exemption, but deadline is still uncertain

The team of the president-elect, Luiz Inácio Lula da Silva (PT), is preparing an MP (provisional measure) to extend the exemption of fuels in early 2023.

The validity period of the measure, however, is still uncertain and is the subject of internal discussions in the team of the future government. PT allies speak of 30 or 60 days, but there is also a defense for a longer period of 90 days.

The final decision depends on a delicate balance between political and economic costs. Reversing the exemption would have a significant potential impact on consumers’ pockets and consequently on inflation right at the beginning of the new government. The increase could be R$ 0.69 per liter for gasoline and R$ 0.33 per liter for diesel.

The maintenance of incentives has a non-negligible fiscal impact. Giving up taxation on gasoline costs R$ 34.3 billion. In the case of diesel, the loss of revenue is around R$ 18.6 billion.

The values ​​are already foreseen in the 2023 Budget, but the future Minister of Finance, Fernando Haddad (PT), is under pressure to obtain an improvement in the result of the accounts for next year.

After the expansion of expenses authorized by the National Congress, the Budget was approved with a gap of more than R$ 200 billion. The reversal of at least part of the exemption could ease the deficit by raising revenue. Therefore, Haddad works to limit the scope of the extension.

During the transition, technicians raised the possibility that a truce in oil prices would create an environment in which the re-encumbering of fuels would be viable. However, the realization of this scenario depends on a series of factors that are beyond the control of the government.

The issue is on the radar because the exemption of federal taxes on diesel and gasoline currently in force ends on December 31 of this year.

The Minister of Economy, Paulo Guedes, reached an agreement with Haddad to issue an MP extending the measure for 30 days, to avoid abruptly discontinuing the policy while the new team seeks a structural solution.

By Lula’s decision, however, the future minister asked the current government to refrain from taking any measure that would have an impact in the following years. Behind the scenes of the current government, there is a perception of a dispute between who would sign the MP, whether President Jair Bolsonaro (PL) or Lula.

Despite the request for suspension of the MP, the future Minister of Mines and Energy, Alexandre Silveira, had already signaled the possibility of the exemption being maintained. “Nothing is ruled out,” he said on Thursday (29).

By resuming the idea of ​​maintaining fuel exemptions for a while, the PT’s team has a menu of options, the definition of which will depend on this balance between the fiscal side and that of consumers.

According to interlocutors, representatives of the elected government even defended maintaining only the incentive on diesel, fuel used in the transport of goods. The assessment is that the reversal of the benefit would have an impact on the freight price and, consequently, on other goods. Therefore, its maintenance would be justifiable.

Gasoline, on the other hand, is more used in individual transport, and there would be no point in maintaining the exemption. The resumption of taxes on this item would replace more than R$ 30 billion in government coffers, easing the deficit.

Although this option has been considered, the alternative with the most force at the moment is the extension of all exemptions, but for a limited period.

Haddad wants to set the course for the policy on fuels with the new board of directors at Petrobras. He has been meeting with Senator Jean Paul Prates (PT-RN), nominated to assume the presidency of the company.

This Friday (30th), Prates spoke about a possible “30 or 60-day truce to hold taxes”, but did not elaborate on the subject.

One of the points to be evaluated is the PPI (Import Price Parity), a price policy practiced by Petrobras since the Michel Temer (MDB) government, which guarantees alignment with the international market.