The political wing of the government acted on Thursday to approve a Proposed Amendment to the Constitution (PEC) that would allow President Jair Bolsonaro (Liberal Party, PL) to zero taxes on all fuels, including gasoline, without having to compensate for the increase in other taxes. In addition, it authorizes a reduction in the Tax on Industrialized Products (IPI) and Tax on Financial Transactions (IOF) on any products without counterparts. The project contradicts the position of Economy minister Paulo Guedes, who is concerned about the impact of this measure on public accounts and who defended a tax exemption restricted to diesel oil, with a lower fiscal cost.
Deputy Christino Áureo (Progressive Party, PP- Rio de Janeiro) filed the PEC on Thursday at the request of a part of the government. The text, as revealed by Valor, was formulated in the Chief of Staff Office, controlled by minister Ciro Nogueira (Progressive Party, PP), and allows for a partial reduction or even zero taxes in 2022 and 2023 to counter one of the main criticisms of voters to the current administration: the high price of gasoline, cooking gas and diesel oil, because of Petrobras’ pricing policy.
The cost, according to economic sources, will be around R$54 billion per year, higher than the total investments planned for 2022. The exemption on gasoline alone would bring a loss of almost R$27 billion to the taxpayer: R$23.8 billion from social taxes PIS/Cofins and another R$3 billion from federal tax Cide. Diesel, on the other hand, would cost another R$18 billion. If Congress resumes the idea, already defended by President Bolsonaro, of cutting taxes on electricity, the impact would rise to up to R$75 billion. In addition, the PEC authorizes a cut in IPI and IOF, among other taxes that had not entered the waiver calculation.
Tax laws require that the reduction of one tax be offset by the increase of others, but a wing of the government decided to propose the PEC to circumvent this rule temporarily. The country has been living with a primary fiscal deficit for seven years and in 2021 it recorded a deficit of R$35 billion in the central government. For 2022, the estimate is a deficit of R$79.3 billion – and that is before the idea to exempt fuel.
The Ministry of Economy did not participate in the elaboration of the PEC, says a source. On the contrary, the ministry considers it bad and. In the opinion of the technicians, it would not even be necessary to change the Constitution. The cut could be authorized by a supplementary law (which would amend the Fiscal Responsibility Law to allow it to happen without the need to create other sources of revenue to compensate for the loss) and adjustments to the Budgetary Guidelines Law (LDO).
The option for a complementary law would also allow Mr. Guedes to pressure President Bolsonaro to veto “exaggerations” approved by lawmakers. On the other hand, a constitutional amendment, although it requires greater support to be approved, is enacted by Congress itself, without this alternative. “PEC is very bad,” said a member of the ministry. The so-called “PEC dos Precatórios” — regarding writs that represent federal debts from loss of court disputes, voted on in December — had the space for spending doubled by congressmen.
The content was also far from what was advocated by the economic area. Until the day before, the perception in the ministry was that the proposal would be expensive to the taxpayer to generate relief in prices that could quickly disappear when faced with a depreciation of the Real against the dollar or the price of oil. Mr. Guedes even publicly criticized the removal of taxes on gasoline at a time of transition to a low-carbon economy. Diesel tax release, on the other hand, was seen as acceptable, given the importance of the fuel in the country’s logistics, not to mention that it pleases one of the president’s bases of support, the truck drivers.
The version filed by Mr. Áureo allows the full release of fuel taxes in 2022 and 2023 without the need for compensation – it would be enough to present financial estimates and adjust the budget laws to the new rates. The endorsement would be for the federal government and also the states and municipalities, giving strength to Mr. Bolsonaro’s strategy of pushing the burden of the gasoline price to the governors who refuse to accept the reduction of ICMS.
On Thursday, the governors declared support for the bill proposed by Senator Jean Paul Prates (PT-RN) to change Petrobras’ fuel price policy, creating a tax on crude oil exports and a fund to stabilize prices in the domestic market. “The bill is born from the problem itself, from the extraordinary profit from the increase in fuel prices,” said the governor of Piauí, Wellington Dias (Workers Party, PT), who coordinates the Governors Forum. The discussion about the ICMS on fuels would be left only for the tax reform.
According to the bill, the reduction of taxes will only have to respect the requirements of presenting an estimate of the budget and fiscal impact of the measures adopted, to comply with the annual goals of fiscal result (which can be changed by law), and to be part of the budget laws (such as the annual budget and the multi-annual plan).
Mr. Áureo told Valor that the text is of his authorship, negotiated with the federal government and that he will wait to discuss the project. “I will continue my dialogue with the government and with productive sectors and society”, he said. The document data, however, show that it was written in the computer of a government technician, the assistant sub-secretary of Public Finance of the Chief of Staff’s Office, Oliveira Alves Pereira Filho, and sent to the deputy to officially present it.
Initially, the idea of the federal government was that Senator Alexandre Silveira (Social Democratic Party, PSD of Minas Gerais) would file the PEC in the Senate if he accepted to be the government’s leader. But he has signalized that he will refuse the leadership after pressure from colleagues and the changing of government’s strategy, with the process starting in the House, where the government’s base is stronger. Mr. Silveira, in turn, is preparing an alternative PEC for the Senate that would contemplate the fuel tax release, and also the use of Petrobras dividends to finance a social fund to balance prices.
The text needs the support of 171 deputies to start being processed. As the Constitution and Justice Commission (CCJ) is not expected to be opened until after Carnaval [March 1], it is most likely that the speaker of the Chamber of Deputies, Arthur Lira (Progressive Party, PP of Alagoas), will decide on admissibility on a floor vote. After that, a special commission would be created and a rapporteur appointed to discuss an updated version of the PEC, within a period of 11 to 40 sessions.
For the economist and consultant Adriano Pires, president of the Brazilian Center for Infrastructure (CBIE), the PEC will have almost no impact on consumers, the same way that occurred with the exoneration of the PIS and Cofins on cooking gas, in effect since March, and diesel, which was valid for three months in 2021. “The government zeroed the PIS and Cofins on diesel, but as the barrel kept rising and the exchange rate kept depreciating against the dollar, the price went up,” he said. He believes that the PEC will also face opposition from the rural caucus and the states that produce hydrous ethanol, which today has a lower PIS and Cofins than gasoline. “If the tax is reduced for both, ethanol will lose a lot of competitiveness,” he said.
(Edna Simão and Estevão Taiar, from Brasília, and Marta Watanabe, from São Paulo, contributed to this story)
Source: Valor International