Guedes says that IPI will be reduced by 25%; cost is calculated at BRL 20 billion

Minister Paulo Guedes (Economy) said this Tuesday (22) that the government is preparing a 25% cut in the IPI (Tax on Industrialized Products). According to government officials interviewed by the sheetthe impact on public coffers is estimated at R$ 20 billion – half for the Union and half for states and municipalities.

“We are going to make the first move now and reduce the IPI by 25%. It is a move to re-industrialize Brazil,” he said at an event held by the BTG Pactual bank. “This excess of collection is not to inflate the machine again. We prefer to transform this collection gain into tax reduction for millions of Brazilians”, he said.

The Federal Revenue ended 2021 with a record collection of BRL 1.8 trillion, a real increase of 17.3% compared to 2020 – the year most affected by the Covid-19 pandemic. Analysts, however, consider that the figure was driven by inflation, that the pace of growth will not be the same this year and that expenses continue to rise.

The IPI reduction was also implemented in the Dilma government (PT), to try to move the economy. As it is a regulatory tax, the IPI can have its rates changed by means of a presidential decree, without the need for approval from the National Congress — where governors and mayors, who would also be affected, exert pressure.

The idea is that, if the proposal is implemented, only cigarettes and beverages will continue with higher taxation. White goods or automobiles, for example, would have their load reduced.

The minister said that the measure has the support of President Jair Bolsonaro (PL); the Minister of the Civil House, Ciro Nogueira; and the president of the Chamber, Arthur Lira (PP-AL). He did not say when the measure would be implemented or what kind of budgetary compensation is being planned.

Guedes says the measure is necessary because the industry has been suffering for decades with high taxes, high interest rates and excessive labor charges.

As shown by sheetthe government has used the IPI cut as a form of pressure on governors so that they accept a change in the collection of ICMS (Tax on the Circulation of Goods and Services) on fuels

While the government is considering cutting federal taxes to lower prices at pumps, the economic team wants governors to also contribute to the reduction rather than readjusting civil servants’ salaries. For this, it started to encourage the approval of the complementary bill 11/2020 – which is in the Senate and changes ICMS rules on fuels.

Last Wednesday (16), however, 27 state finance secretaries released a letter against project 11/2020. This occurred even after the version of the substitute presented by Senator Jean Paul Prates (PT-RN). Now, Guedes returns to speak at the IPI.

The different ideas for tax cuts have been closely followed by the market due to the potential fiscal impact of the measures.

Sergi Lanau, deputy chief economist of the IIF (Institute of International Finance, global association of banks), wrote in an article in recent days that Brazil will hardly avoid a scenario of accelerated debt growth in the next five years if it implements significant tax cuts, as in fuels.

Lanau saw the Ministry of Economy’s proposal to cut IPI as the option with the least impact. Other proposals, however, continue to be discussed in parallel.

The price of fuel is a priority for Bolsonaro and the allied base, which fears the impact on the elections and has sought different initiatives to address the issue.

In both Houses of Congress, the reduction in fuel prices is discussed. In the Chamber, government deputy Christino Áureo (PP-RJ) filed a PEC (Proposal for Amendment to the Constitution) with the approval of the Planalto.

In the Senate, another dubbed “PEC Kamikaze” appeared by the economic team. She had the support of government ministers and the senator and son of the president, Flávio Bolsonaro (PL-RJ). The potential impact is over R$100 billion, according to members of Minister Paulo Guedes’ portfolio.

In the current scenario – that is, disregarding a tax cut on fuel or the IPI –, the National Treasury already calculates that government indebtedness will remain above the pre-Covid level for at least another ten years.

The forecast in the base case is that the net public sector debt (the DLSP), which represented 54.6% of GDP in 2019 and ended 2021 at 57.3%, will continue to rise until reaching 66.8% in 2030 .