Economy fears that discussion on Fuels PEC will press dollar and raise prices

The economic team fears that the discussion on the PEC (proposed amendment to the Constitution) formulated by Palácio do Planalto to cut fuel taxes without budgetary compensation will put even more pressure on the exchange rate.

Paulo Guedes’ team (Economy) says that the dollar level, directly linked to the prices observed at gas stations, can escalate in the midst of discussions and contribute to eliminating the effect of the intended tax cut.

However, the currency is on a downward trajectory. This Monday (7), the dollar fell to the lowest rate against the real in almost five months, at R$ 5.2520. Analysts attribute the decline in debt to the rise in the basic interest rate (Selic) by the Central Bank, which increases the attractiveness of Brazilian fixed income for foreign investors.

For members of the Ministry of Economy heard by the Leaf, this cooling of the dollar would help to contain the rise in prices, including those of fuel. The negotiation of the PEC, however, could change this scenario, they say, amid investor fears about the impact of the final text for public coffers.

In addition to fiscal uncertainties, factors such as institutional instability (including that stimulated by President Jair Bolsonaro), rising interest rates in large economies, the conditions of activity in Brazil, electoral news and international geopolitical tension can affect the exchange rate.

Guedes and his team have constantly warned the rest of the government about the risks of debates. Last Friday (4), the head of the economic team had lunch with Bolsonaro and expressed concern about the course of the discussions.

The Ministry of Economy is against the PEC solution and advocates that the legislative effort be directed to PL (Bill) 11/2020. The text, approved in the Chamber in October and stopped in the Senate since then, would change the collection of ICMS and establish limits for taxation.

The states resist the changes in the tax, but the members of the portfolio say that the PL goes to the heart of the problem and has an immediate impact. In addition, the project would not infringe the electoral law as it is not an act of the government and as it was already approved by the deputies last year – the same understanding is not guaranteed for the PEC, which even contained the signature of a member of the Civil House. in the document properties.

The PL would also require a smaller articulation effort, as it has already been approved in the Chamber – it is now enough to be approved by a majority of the Senate. A PEC, on the other hand, would require the approval of three-fifths of the deputies and then the senators.

The text of the PL establishes that the ICMS rates for fuels are specific, by unit of measure (the so-called ad rem), instead of being linked to the price charged at the pumps (ad valorem). According to the text, the percentages would be defined annually by the states and would be in force for 12 months.

The project also prevents the rates from exceeding, in reais per liter, the average value practiced over the two previous years. For the first year of validity, the values ​​could not be above the average observed in 2019 and 2020.

Faced with the governors’ resistance to changes in ICMS, the government even discussed the alternative of putting pressure on them with the possibility of making a linear cut in IPI (Imposto sobre Produtos Industrializados) rates, which is also received by the states – as shown The leaf.

Even with the government’s preference for the ICMS, Palácio do Planalto concluded last week a PEC that allows for a broader reduction in fuel taxes than what was agreed with Guedes and handed it to a deputy from the base to be filed. in the camera.

In the face of discussions via the PEC, the government put on the fridge the proposal considered until the last week to cut the IPI as a way to pressure governors for changes in ICMS. According to technicians consulted by the leafa tax exemption greater than that applied only to diesel will take away the fiscal space for the execution of the strategy.

The government’s PEC was written by an official from the Civil House, the deputy deputy head of Public Finance, Oliveira Alves Pereira Filho, as can be identified in the document’s properties.

Afterwards, the proposal was filed by Deputy Christino Áureo (PP-RJ), who now collects the 171 signatures necessary for it to be processed in the House.

A government ally and a supporter of the Civil House minister, Ciro Nogueira, Áureo proposed a broader text, covering diesel, gasoline, ethanol and cooking gas. Guedes advocated lowering the tax on diesel alone.

The race for a solution to lower fuel prices has opened up a PEC war in Congress. The dispute is fueled by a division within the government itself, in which different members of the political wing support different proposals. The initiatives also put the House and Senate in search of protagonism in an agenda with strong electoral appeal.

The Ministry of Economy, in turn, was run over by all sides and remained isolated in the defense of more restrained measures, which do not risk the situation of public accounts so much.

In addition to the proposal in the Chamber, which authorizes a wide exemption of taxes on fuels, another PEC was presented in the Senate, which goes further and includes the extension of gas assistance to a greater number of families, diesel assistance of R$ 1.2 thousand to truck drivers and a R$5 billion subsidy to avoid city bus fares.

The president had been giving priority to solutions for fuel prices, which have driven inflation and could reach a new peak in the third quarter, the height of the election campaign. For more than six months the government had been working on a proposal.

Bolsonaro is second in the polls, behind former president Luiz Inácio Lula da Silva (PT).

Understand the Fuels PECs

In the camera

Author: Deputy Christino Áureo (PP-RJ), who presented a text formulated by the Civil House

What it provides:

• Union, states and municipalities will be able, in 2022 and 2023, to reduce or eliminate taxes on fuel and gas without compensation
• Extra-fiscal taxes (such as IPI, IOF and Cide) may also be reduced in 2022 and 2023, not only on fuel and gas

Impact: BRL 54 billion, according to government calculations

in the senate

Author: Senator Carlos Fávaro (PSD-MT), with the support of the President of the House, Rodrigo Pacheco (PSD-MG)

What it provides:

• It allows, in 2022 and 2023, to reduce federal, state and municipal taxes on the prices of diesel, biodiesel, gas and electric energy, without compensation for the loss of revenue
• Allows the reduction of other extrafiscal taxes (such as IPI, IOF and Cide)
• Authorizes the Union to create, in 2022 and 2023, a diesel aid of up to BRL 1,200 per month to self-employed truck drivers
• It also allows the expansion of Auxílio Gás, in number of families and in subsidized amount (50% to 100% of the value of the cylinder)
• Authorizes transfers of up to BRL 5 billion to municipalities to subsidize free seniors and avoid a significant increase in tariffs

Impact: More than BRL 100 billion, according to government calculations