Government eliminates import tax on ethanol and six foods to try to contain inflation

The government announced this Monday (21) that it has zeroed the Import Tax on ethanol and six products from the basic food basket to try to contain inflation. The impact on public coffers is estimated at R$ 1 billion per year.

The measure covers coffee, margarine, cheese, macaroni, sugar and soy oil. According to the Ministry of Economy, these are items that register above-average price growth in the last 12 months and whose reduction mainly benefits the low-income population.

Lucas Ferraz, Foreign Trade Secretary at the Ministry of Economy, says that the acceleration of inflation has been generated by the effects of the Covid-19 pandemic and that the scenario could worsen with the war in Europe.

“Since last year, inflation has become a problem of a global nature. This was the result of the post-Covid global economic recovery and persistent supply bottlenecks. This scenario, which was already worrying, becomes even more worrying with the recent advent of the war between Ukraine and Russia,” he said.

According to him, the tax cuts will generate a supply shock for the Brazilian market and contribute to slowing down inflation. “It is a measure aimed at protecting the consumption basket of the poorest population. [Mas] is not a silver bullet, of course,” he said.

The tariffs being reduced today range from 9% to 28%, according to the government. The expectation is that the measure will reduce the impact of these items, especially on the INPC (National Consumer Price Index) – an inflation indicator aimed at low-income individuals.

“zero [as tarifas] until December would contribute to a cooling of the inflationary dynamics, because it would cause a supply shock through imports, affecting the price dynamics”, stated Ferraz.

According to the government, the reductions being made now affect a list of products whose alteration is released by Mercosur (Southern Common Market) because they are considered exceptions.

Marcelo Guaranys, executive secretary of the Ministry of Economy, said that the initiative follows guidelines from Minister Paulo Guedes (Economy), who would have asked for a gradation in the adoption of measures.

“Following the gradual approach that the minister has been asking for, we are concerned about the concern of inflation on the poor and the population in general. We know how much this can erode everyone’s purchasing power,” stated Guaranys.

In addition, the government also reduced the Import Tax on IT and capital goods (machinery and equipment) by 10%.

The government had previously reduced the tariff by 10% on these products – so the reduction now amounts to almost 20%. “Every industry needs these goods and this increases everyone’s productivity,” stated Guaranys.

According to him, the cuts in this case stem from Guedes’ desire to open up trade coordinated with an increase in Brazilian productivity. “We have made permanent tax cuts to generate employment and income incentives,” said the executive secretary.

With that, the total impact of tax cuts made by the government and Congress this year rises to R$ 55.2 billion. As shown by sheetthe economic team defends the measures, but sees limits to the cuts.

The view is that, although the government has an increase in revenue, the reductions cannot be so large as to threaten a change in the fiscal result forecast for the year – especially considering the elections, since the worsening could send a bad signal to the market. .

At the same time, President Jair Bolsonaro (PL) has demanded initiatives in search of a popular agenda on the eve of the electoral calendar and, among the priorities, are precisely actions that may represent a response to the escalation of inflation.

The IPI (Imposto sobre Produtos Industrializados), for example, can be cut even further for some products. The government has already reduced the tax by 25% just over two weeks ago, at a cost of around R$20 billion per year (half for the Union and half for states and municipalities).

“There is a possibility, according to Paulo Guedes, of reducing [o IPI] even more so for automobiles, motorcycles and white goods. It’s a fantastic thing because it’s never been heard of in Brazil,” Bolsonaro said in a ceremony last Tuesday (15).

The president did not mention that PT governments have already taken this initiative and cut the IPI precisely on cars and white goods in an attempt to move the economy.