Fuel PEC may not be a solution to lower prices, says Treasury secretary

The Secretary of the National Treasury, Paulo Valle, said this Wednesday (26) that the PEC (proposed amendment to the Constitution) to allow a reduction in fuel taxes “not necessarily” will be the solution adopted by the government.

He also acknowledged that a possible cut in rates could have an impact on the result of public accounts, but said that “it is too early” to make an assessment of the impact of this on the country’s indebtedness.

“I think it’s too early for us to answer, because we still don’t have a proposal. There are still studies and suggestions that were taken to the Civil House, we are participating in the discussions, and not necessarily the solution will be the one that has been discussed”, said Valle.

as showed the leaf, President Jair Bolsonaro’s (PL) intention to zero federal taxes on fuel and electricity could generate an invoice of almost R$130 billion in revenue and interest waivers on the public debt.

The calculation was made by economist Gabriel Leal de Barros, a partner at RPS Capital, at the request of the report.

By giving up collections in a scenario of public accounts in the red, the president makes the country even more indebted to bear the cost of politics. The issuance of this debt would be made upon payment of interest to its investors.

According to Barros, of the calculated amount, R$ 70 billion would be waived and another R$ 59.7 billion in debt interest.

In a press conference to talk about the public debt management strategy in 2022, Valle pondered that the scenario is still undefined in relation to measures related to fuel prices.

“It is logical that the values ​​that are being mentioned are quite high, and then they can affect this year’s primary, but I think it is very recent, it is still very undefined. This will even have to be an object of appreciation by the National Congress”, he said the Secretary of the Treasury.

Without any reduction in taxes, the government already foresees a deficit of R$ 79.3 billion this year. The country has accumulated successive deficits since 2014.

The tax cut is part of Bolsonaro’s plans to slash fuel prices in the year he seeks re-election.

The president, his political assistants and even members of the economic team express concern about the risk of inflation having a new peak in the third quarter of 2022 – right at the height of the election campaign.

In order to be able to bring the rates to zero without fiscal constraints, the idea is to approve a PEC that, in practice, tramples the LRF (Fiscal Responsibility Law) and allows the reduction of taxes without any compensation for the loss of revenue.

as showed the leaf, the government also wants to include in the PEC an authorization for governors to cut the ICMS (Imposto sobre Circulação de Mercadorias e Serviços) on fuel and energy.

The inclusion of this device is a way of putting pressure on governors, with whom Bolsonaro has been fighting a long and intense battle over alleged guilt for the increase in the price of gasoline, diesel and ethanol.

The Chief Executive argues that the governors do not accept giving up the ICMS tax on fuel and that this is a determining factor for the price at pumps to remain high.

Since the discussions became public, governors opposed to the government have privately expressed concern about the risk that the PEC could end up unbalancing state accounts. Despite the recent increase in collections, a cut in ICMS rates would have a significant impact on revenues.

Amid public pressure, the governors decided this Wednesday (26) to keep the ICMS on fuel freeze for another 60 days, as shown by the Panel.

The decision reverses the initial intention to decree the end of the freeze, which began in November 2021 and was expected to end at the end of this month.

The freezing is done by maintaining the so-called PMPF (Weighted Average Price to Final Consumer) at the levels in force on November 1, 2021.

However, this did not prevent further price increases, as Petrobras’ readjustment policy follows the prices of a barrel of oil on the international market, in addition to the dollar.

“With the aim of observing the consensus and the concomitant updating of the basis for calculating fuel prices, currently based on the international value of a barrel of oil, they consider it essential to extend the said freeze for the next 60 days, until structural solutions for stabilization of the prices of these inputs are established.