Exempting gasoline would serve the upper middle class, criticizes Guedes secretary

Amid pressure from the government’s political wing for additional measures to contain fuel prices, the Special Secretary for the Treasury and Budget, Esteves Colnago, said on Tuesday (22) that waiving federal taxes on gasoline “is not good policy.” “, given that it would also benefit upper-middle class families who use a private car to get around.

“There’s this pressure [para desonerar gasolina]. We understand that it is not a good policy, as you are serving upper-middle-class people,” Colnago said at a press conference to announce a block of BRL 1.7 billion in expenses from the 2022 Budget.

According to him, the case of gasoline is different from diesel, which is used in urban public transport and also by trucks and ships to carry cargo such as food – and, therefore, there was justification for the exemption.

Colnago said the government can design more appropriate and lower-cost policies “if and when that is the case.” “We understand that you are not in that situation yet.”

Economy Minister Paulo Guedes has already indicated the ministry’s willingness to discuss additional measures to contain the rise in fuel prices, but only if the effects of Russia’s war against Ukraine continue. The conflict has caused strong variations in oil and exchange rates, impacting prices at pumps.

“We understand that the moment is to wait. We have just made a considerable reduction in taxes. We need to understand how the exchange rate will be, how oil will be”, said Colnago, without giving any clues as to what would be a turning point in the portfolio’s position. “All the measures that are adopted have a cost for society.”

The government has already given up R$49.8 billion in revenue this year with tax cuts and other exemptions. Of this amount, BRL 14.9 billion refers to the PIS/Cofins exemption on diesel, biodiesel, cooking gas and aviation kerosene, a measure approved by Congress and sanctioned by President Jair Bolsonaro (PL) this month.

The possibility of exoneration of gasoline was announced by President Jair Bolsonaro himself, but any decision would be subject to Guedes’ approval. Internal calculations in the economic area indicate that an exemption of this type could cost up to R$ 27 billion a year.

Others in the government’s political wing have advocated a direct diesel subsidy to further lower the price to consumers. There are estimates of a cost of R$ 6 billion for a period of three months.

“There is no possibility of infinite spending. Spending is regulated, everything has a cost for society”, warned Colnago. “I can’t go around adopting measures in an unbridled way because this has a cost for society. This can come back in an increase in interest rates, or an increase in inflation, or an increase in taxes”, she said.

According to the secretary, if any additional measures are necessary, it will be done, but “needs to be regulated”.

Within the economic team, if there is a need for additional action, there is a preference for the option of a temporary income transfer and aimed at the most affected groups, such as taxi drivers, delivery people and app drivers.

In the current scenario, however, Colnago said that any spending needs to be subject to the ceiling, already heavily pressured by the need for locks to avoid a blowout.

The spending ceiling amendment provides for the possibility of opening extraordinary credits to cover urgent and unpredictable expenses, without them being limited to the fiscal rule.

The special secretary said that he did not see elements today that would justify the opening of an extraordinary credit to fund a benefit of this type, but he was open to possible arguments presented in the future by the ministries. “I find it difficult today to see extraordinary credit being made possible, but I need a ministry to present its justifications,” he said.

In addition to limiting the spending ceiling, the government still needs to respect the fiscal target, which authorizes a shortfall of up to R$ 170.5 billion in the year. The most recent estimate indicates that the target must be met with ease – the forecast deficit is R$ 66.9 billion.

This does not mean, however, that the government has a space of BRL 103.6 billion to accommodate new revenue waivers or expenditure increases accredited to be outside the spending ceiling.

In practice, the space to accommodate new impacts on revenue is only R$ 44.96 billion, informed the Secretary of the National Treasury, Paulo Valle.

A first reason is the need to incorporate an accounting expense of R$ 23.8 billion into the primary result due to the agreement between the Federal Government and the São Paulo City Hall to end the legal dispute over Campo de Marte.

As the agreement means a kind of indemnification payment from the federal government to the City Hall, this amount will need to be accounted for in the results of public accounts, although it does not generate any effective disbursement – in exchange for the end of the dispute, the government will extinguish the debt of the municipality of São Paulo with the Union.

There are still another R$34.8 billion in legal debts that are outside the 2022 budget forecast, but that can be settled in advance through agreements or account meetings with creditors who also have debts with the Union, according to the rules approved in the PEC (Proposed Amendment to the Constitution) of the precatories.

In a conservative scenario, in which all these debts are settled in advance, the government’s primary result could worsen by R$34.8 billion.