Government prioritizes cuts in fuel taxes; subsidy impasse continues

The government will focus efforts on passing a bill in the Senate to exempt fuel taxes while trying to reach a consensus on what additional measures will be taken to contain the rise in pump prices, due to the conflict between Russia and Ukraine.

In a meeting this Wednesday morning (9), President Jair Bolsonaro (PL) discussed the issue with ministers Paulo Guedes (Economy), Bento Albuquerque (Mines and Energy) and Ciro Nogueira (Casa Civil) and with the president of the Central Bank, Roberto Campos Neto. However, once again, there was no consensus.

Bolsonaro even canceled a trip he would make to Duque de Caxias (RJ) to attend the meeting. For months, the Palácio do Planalto has made it a priority to find a solution to the high fuel prices in this election year.

The government seeks to secure the vote in the Senate this Wednesday (9) – the proposal is already on the agenda of the plenary. Its approval is considered a first sign in the direction of lowering pump prices.

According to government sources, prioritizing the project gives the Economy Ministry time to try to minimize damage, while seeing a temporary relief in the dollar and oil amid negotiations between Russia and Ukraine.

Guedes’s portfolio resists paying a direct subsidy on fuel prices – a measure defended by Albuquerque and other ministers on the political wing.

Internal government scenarios point to a cost of R$ 27 billion to fully fund the current lag in diesel prices for another three months. The amount would have to be passed on through extraordinary credit, which is outside the spending ceiling – a scenario that Guedes wants to avoid at all costs.

On the other hand, in Palácio do Planalto, the assessment is that the approval of the project in the Senate does not remove the need to implement subsidies to reduce the price at the pump more quickly. Therefore, this hypothesis remains strong in the political wing, which credits Guedes with the fact that an action in this sense has not yet come to fruition.

Even technicians in the economic area admit that the subsidies hypothesis has gained strength, but there is an expectation that further discussions on the topic will only take place after the project has been appreciated by the National Congress.

PLP 11, which is in the Senate and became the focus of Planalto, changes the collection of ICMS (Tax on the Circulation of Goods and Services), which is no longer a percentage of the value and becomes a fixed rate on the liter .

In the view of the Economy, the change would ease the rise in prices. The governors are against it due to the loss in revenue.

The Planalto also wants to include the exemption of PIS/Cofins from diesel and gas in the proposal – a request that the rapporteur, Senator Jean Paul Prates (PT-RN), has already signaled that he will comply. The measure generates a waiver of BRL 18 billion in government accounts.

The imbroglio over fuels lasts for a few days, as shown by the sheet. The issue generated an arm wrestling in the upper management, putting the Ministry of Economy and the Ministry of Mines and Energy on different sides, accompanied by the political wing closest to the president.

The concern is to act quickly to stop the impact of the rise in oil derivatives on consumers’ pockets in an election year. The interpretation of the president’s allies is that the lack of control in the prices of gasoline, diesel and cooking gas, in addition to the high inflation that will come from this extra cost, will be harmful to his reelection. The recommendation is that he make a decision as soon as possible.

The possibilities had already been discussed at a meeting in Planalto this Tuesday (8) between ministers, Campos Neto and the president of Petrobras, General Joaquim Silva e Luna.

At the time, there was no solution, but Guedes defended the change in state taxes on fuels and the exemption of PIS/Cofins on diesel, while the political wing together with Petrobras argued in favor of a subsidy program to hold back the rise in prices. .

The idea of ​​this group is that the Treasury bears the cost of containing prices, a measure to which Guedes is vehemently opposed. Technicians in the economic area claim that there is currently no technical justification for opening extraordinary credits to fund this subsidy outside the fiscal rules, such as the spending cap.

Behind the scenes, however, sources acknowledge that it is increasingly difficult to hold back pressure for a subsidy program. Petrobras has claimed that, without this, there is a risk of shortages in the country.

The scenario that foresees the cost of R$ 27 billion with subsidies for three months, however, was not discussed at the Tuesday meeting, according to government sources.

Participants in the negotiations admit that the final cost may be below that, considering the space in the accounts. Other options on the table are a broader tax exemption, which includes gasoline — a move that the economy also opposes.

Until the president hits the hammer, the government’s expectation is to approve PLP 11 in the Senate, whose vote is scheduled for this Wednesday (9).

The project’s rapporteur, Senator Jean Paul Prates (PT-RN), said he must comply with the government-sponsored amendment to exempt diesel, but defended the joint approval of a second project reported by him, which provides for the allocation of Petrobras profits to an account that cushions the rise in prices.

“There is widespread consensus that Congress needs to give the government some instrument to contain price volatility,” he said.

In the short term, in a change of attitude considered unexpected by the market, the Economy even signaled that it would not oppose Petrobras offering a contribution to the relief of the crisis, absorbing the rise in international prices and holding the readjustments provisionally.

President Jair Bolsonaro himself publicly defended the change in the company’s pricing policy.

“There’s a wrong legislation made back there that you have parity with the international price [dos combustíveis]. In other words, oil —what is taken from oil— takes into account the price outside Brazil. This cannot continue to happen”, he said during an interview with a radio station in Roraima.

The proposal would have to be approved by the board of directors and divides members of the state-owned company. If on the one hand, in fact, there is financial space to provisionally absorb the freeze, since the state-owned company had a historic profit of R$ 106.6 billion last year, the measure is also seen as an intervention.

On Tuesday night, when questioned by journalists, Minister Paulo Guedes said to forget about any idea of ​​restraint in fuel adjustments. “There’s no freezing,” he said.

This Wednesday (9), Vice President Hamilton Mourão defended the use of royalties and dividends from Petrobras to subsidize fuel prices.

“In my opinion, the best course of action — the one that would cause less damage later on — would be to use the resources from royalties and dividends to provide a fuel subsidy during a duly qualified period. R$ 14 billion for about three or four months. Until this conflict situation subsides and, consequently, the price of oil returns to a more adequate level”, said the deputy, upon arriving at his office in Brasília.