Opinion – Vinicius Torres Freire: Congress decides soon who pays the bill for Bolsonaro’s electoral package

Arthur Lira (PP-AL) has put a knife to the necks of states and municipalities with the aim of lowering taxes on fuel and perhaps on electricity, communications and transport. It also threatens a default on electricity distributors (those who sell energy to consumers).

Lira wants to lower inflation by force and in the short term in order to improve the electoral chances of Jair Bolsonaro and the gang. Other promises from the government, such as the readjustment of the Income Tax table, reaffirmed in April, were for the vinegar, as well as the idea of ​​subsidizing diesel and gasoline, expensive and unfeasible, but ineffective.

The government therefore urgently needs more funds to obtain votes.

Lira’s threats would cost tens of billions, have a short-term effect on inflation, give some money to consumers and leave more economic problems for the next government.

Lira is the president of the Chamber, sultan of the center, lord of all amendments and regent of the Bolsonaro government. He threatens to put to a vote this week a bill that, in the end, lowers ICMS on fuel, electricity, communication and transport. Another suspends contracted adjustments to the electricity bill. The government and the Senate and Chamber command are pressing for states to reduce ICMS on diesel.

It is uncertain whether such projects will pass. But blackmail is on the table.

The project that reduces ICMS rates would take R$ 65.7 billion from states and municipalities, in a year, according to the National Confederation of Municipalities (the state governments’ account, loss of up to R$ 100 billion, is an exaggeration). Nor should they lose all that either, because with less tax, there will be some extra consumption (and recovery of part of the revenue).

Would states fail? Not really, even though the taxes at stake are 29.8% of state tax revenue on average (and yes, states spend badly). But most of the Northeast, Midwest, Rio de Janeiro or Minas Gerais, which depend more on the taxes threatened by Lira (32% or much more of total revenue), would suffer the most. São Paulo and Santa Catarina (about 22%), much less.

In the 12 months through March, states and municipalities had a primary surplus (income greater than expenditure) of R$130 billion (or R$123.3 billion, without correction for inflation). It is equivalent to the entire surplus of the public sector (federal government, which has a deficit, state and regional governments).

But the surplus of states and municipalities tends to fall (it is at the highest level in 20 years), not least because they will lose revenue due to federal tax cuts (which they are partially entitled to). Furthermore, spending is already on the rise, and collections will no longer grow as in this season of high inflation and commodities.

Yes, if the tax cut reached the consumer in full, inflation would drop significantly in the short term (a percentage point, thereabouts). The public deficit would increase, in the worst way: more debt, more interest.

If the suspension of the distributors’ adjustment passes, there will be legal and economic confusion and only postponement of the increase – even Bolsonaro’s people think this idea is insane.

If states lower their single diesel rates (Bolsonaro went to the STF to do so), the price reduction will be minimal.

It’s possible to tinker with taxes, have energy policy and hell. But what is being done now is immediate electoral improvisation. The bad consequences start to appear as early as next year.

In the end, who will pay for this electoral fraud is the country, with less growth and more debt. The crowd in particular.