Guedes confirms a moderate tax reduction is on the table

The Minister of Economy, Paulo Guedes, said Tuesday that the federal government is considering a moderate reduction in some taxes. Among them are those levied on diesel and the Tax on Industrialized Products (IPI). Guedes also criticized the idea of creating a stabilization fund for fuel prices.

“We are studying which taxes could be moderately reduced,” he said in a virtual event promoted by Credit Suisse.

Valor published on Tuesday that the government was evaluating to zero the IPI tax rate. At the event, Guedes was asked about the topic and the Proposed Amendment to the Constitution (PEC) of Fuels.

“It has always been part of our program that increases in tax collection would be transformed into tax simplification or reduction,” he said.

The minister pointed out that last year the collection grew by almost R$300 billion compared to 2020, of which R$100 billion were permanent gains.

“If they don’t want to make a overhaul of the Income Tax, this increase in collection will not be in the hand of a fat State,” he said.

According to Mr. Guedes, to reduce taxes, the federal government could give up, for example, 10% to 20% of the structural revenue growth. In this case, the primary deficit would grow from 0.4% of Gross Domestic Product (GDP) recorded last year to something around 0.6% to 0.7%, in his calculations.

According to the minister, the IPI reduction would serve “to benefit the industrial sector, mass consumption” and “reduce the incidence of taxes on the most fragile”. The collection on diesel is around R$ 18 billion per year.

“We could reduce this a little too,” he said.

In the case of the reduction of taxes on gasoline, Guedes was less favorable. According to him, it might not make sense to adopt a measure similar to a gasoline subsidy “if we are moving towards a green economy.”

He also said that “we are already starting to signal that we are going to reduce indirect taxes as well.

At the event, the minister was asked about the proposal to create a stabilization fund for fuel prices and sharply criticized the idea, considered by him to have little chance of success and to be expensive.

“More than 80 percent of [fuel] price stabilization funds in other countries have gone wrong,” he said. “Those that are alive cost the population a lot.”

Mr. Guedes pointed out, for example, that the first proposal on the subject indicated annual spending in the region of R$ 120 billion, “three times what the Bolsa Família was.” To him,

“It is easier to eradicate poverty than to subsidize gasoline.”

The minister also said that a possible second term of President Jair Bolsonaro (PL) would bring changes in fiscal policy. He said that the existence of so many fiscal rules is “unfortunate,” but said that now they are necessary because of the rigidity of the Budget.

“Is it necessary to have five, six, seven rules? I don’t think so,” he said. “As long as we don’t unbind, untie and deindex the Budget these rules are going to continue as containment, which is regrettable.” According to him, in a second mandate, “we would remake this logic of the Budget.”

For Mr. Guedes, the country is going through an “irreversible transition” and that “happens in many dimensions” towards a less centralized economy and with greater participation of the private sector.

(Lu Aiko Otta and Edna Simão contributed to this story)