Extending exemption on fuel takes R$ 25 billion from Lula’s coffers 3

The extension of the exemption on fuels will cost R$ 25 billion to the coffers of the government of Luiz Inácio Lula da Silva (PT) in 2023.

The value appears in the explanatory memorandum of the MP (provisional measure), signed by the PT on the same day he was sworn into office, in order to prevent an increase in taxes from marking the beginning of his new management.

The loss of revenue is already included in the 2023 Budget forecasts and, therefore, will not require additional compensation. However, it means a setback for the economic team, which intended to reverse exemptions to rebuild cash and issue a sign of commitment to the accounts.

The MP extended until the end of the year the exemption of PIS/Cofins on diesel, biodiesel and cooking gas. Other fuels, such as gasoline and ethanol, had the benefit extended until February 28.

“The measure on screen causes tax revenues to be waived estimated at R$ 25 billion (twenty-five billion), which has already been considered in the budget revenue estimate for 2023”, says the text.

The Budget proposal was sent by former President Jair Bolsonaro (PL) in August 2022, contemplating the prospect of extending all exemptions for one year. The full cost of the measure was calculated at R$52.9 billion.

The Minister of Finance, Fernando Haddad (PT), and his team resisted the exemption and hoped that the reversal of the benefit would allow the reduction of the gap of more than R$ 220 billion that remained after the approval of the PEC (proposed amendment to the Constitution) which authorized an increase in expenses of up to R$ 168 billion this year.

If, on the one hand, the new exemption partially frustrates this plan, on the other hand, the impact is less than what was planned in the Budget. Thus, Haddad would still be able, in theory, to recover BRL 27.9 billion, easing part of the deficit.

The positive impact, however, is still uncertain because members of the political wing see the need to extend the benefits for longer than just two months, until Lula finds a structural solution for fuel prices.

On Monday (2), Haddad said that the extension of exemptions was a decision taken by Lula due to “the delay in Petrobras’ transition” —the company will be chaired by current senator Jean Paul Prates (PT-RN), but there is still a bureaucratic procedure for the formal appointment. The intention is to discuss a joint solution for fuels.

As shown to Sheetthe new government wants to analyze the PPI (Import Price Parity), a policy adopted by Petrobras that keeps fuel prices in line with those of the international market.

While there is no definitive solution, the fuel debate involves a delicate balance between political and economic costs. Reversing the exemption would potentially have a significant impact on consumers’ pockets and consequently on inflation soon. In gasoline, whose benefit is only guaranteed for the next two months, the increase could be R$ 0.69 per liter in gasoline.