Oil tax in Brazil: Lula da Silva’s economy is inspired by Rousseff’s second term

It was supposed to be the key week for the new government to finally reveal its economic letters to the country with sincerity, but as it has done since the election campaign in which it refused to present an economic plan, Lula and his government continue to prefer the path of “ambiguity” At least in terms of communication.

This week, in fact, the appointment of two new directors of the central bank (BCB), including the crucial directors of monetary policy and surveillance. After a strong crusade by Lula and his Workers’ Party (PT) against the president of the BCB, Roberto Campos Netoin order to reduce the Selic rate from the current 13.75%, the government preferred postpone any decision See you next week.

The Central Bank has been independent since 2021, but it is the president who decides the names of its directors. According to rumors in the Brazilian press, Lula plans to replace the current head of monetary policy, Bruno Serra Fernandesand inspection, Paulo Souzawhose terms expired on February 28 but whose competence enjoys the strong support of Campos Netos, by Luiz Awazu Pereira da Silva and Tony Volpon, former administrators of the Central Bank under the mandate of Dilma Rousseffof which the economic legacy still weighs in the pockets of millions of Brazilians.

The priority of the new government this week was then the question of Gasoline. On February 28, the interim measure signed by Lula on January 1 to extend the exemption requested by Bolsonaro in the elections expired. The new government waited until the afternoon of the last day to reveal its decision to Brazil. There was no shortage of blunders.

At a press conference, the Minister of the Economy Fernando Haddad said that Lula had renewed the exemption on January 1”because he had heard of the possibility of a coup attemptsuggesting that the new government was well informed on what could happen and what happened on January 8th.

The announced increase was announced at the same time as the oil company’s price cut Petrobras 3.93% in petrol and 1.95% in diesel. The Petrobras measure allowed the government to increase taxes, yes, but less than expected, for a total of 0.47 reais for gasoline and 2 real cents for ethanol. Although for the Brazilian Association of Fuel Importers (ABICOM), the final increase for consumers should be around 0.25 reais, in many gas stations in the city of São Paulo the increases reached yesterday up to one real (19 cents).

And while it is true that diesel has not been affected so as not to affect trucking transport which carries almost all the country’s goods and thus avoid more inflation in consumer goods, gasoline increases will also impact less affluent segments of the population. It was mainly the application pilots who overcame the economic crisis caused by the pandemic precisely thanks to the work offered by companies such as Uber, iFood, Rappi or 99. Not by chance, after the measure announced by Haddad, iFood resigned the 6. 3% of its workers, due to the new “economic scenario”.

However, behind what many Brazilian newspapers interpreted as Haddad’s victory over the party’s radical wing, that is, the dominance of a public accounts-centric approach over a policy of unlimited spending to guarantee social policies, hides a more complex problem: Petrobras Price Control. In the last term of Dilma Rousseff (2015-2016), which resulted in his dismissal, this same policy had a disastrous impact on the economy. His government has been accused of using Petrobras as a macroeconomic policy tool to control inflation. But eventually, the country entered its worst recession in a hundred years.

Among the signals sent by the new government on Tuesday is the introduction of the 9.2% export tax on crude oil, a measure valid for only four months with which the government expects to seize 6.6 billion de reais, or about 1.3 billion dollars, but not to worry too much. on the legal uncertainty that the measure entails.

Indeed, it could cause strong legal disputes with the accusation of not respecting the rules of the auction of oil concessions, which took place without this tax. The newspaper The globe summarizes the problem as follows. “The rule was changed while the game was still in progress. To understand how disastrous the measure is, just think of what would happen if every country in the world adopted it. There would be a contraction in international oil trade, with prices rising for all countries. I would be a masochist.”

For Alexander Silveira, Minister of Mines and Energy, this increase “could lead to greater investor interest in refining in Brazil itself”. If by this the minister meant that the measure could create an incentive for the creation of new refineries, the press release ignores the fact that this type of investment is generally long-term, whereas the measure is currently only valid for four month. If, on the other hand, Silveira meant that foreign oil companies might be interested in refining operations in Brazil, that sounds the geopolitical alarm. Countries like Venezuela and Iran, with which Brazil has resumed or is strengthening diplomatic relations, are using the oil issue to circumvent sanctions and could take advantage of the Brazilian opportunity.

For the tax lawyer Romero Tavares“taxing exports is something very rare in the world. It allows the State to intervene on supply and demand and to artificially regulate prices. In imports, to correct problems in the domestic market, it is an understandable option, but in exports, it is only done in the event of serious problems in the international market, which is not the case in the Brazil”. Main entity of the oil sector of the country, the Brazilian Oil and Gas Institute (IBP), expressed in a press release his “major concernbecause the taxation of exports, “even temporary, can have an impact on the competitiveness of the country in the medium and long term, in addition to undermining the national credibility in terms of the stability of the budgetary rules”.

The government has also announced its intention to change the rules of the game regarding the distribution of dividends from Petrobras to its shareholders, which reached in 2022 the record figure of more than 188.3 million reais, or about 36 billion dollars, but did not give further details. The motivation is said to be to avoid large increases in state prices and to secure greater investment in the energy transition.

However, investors are feared to flee. In the last few hours, all these uncertainties have weighed on Petrobras stock on the stock exchange, which on Tuesday lost 14.9 billion reais in its market value, or almost 2.9 billion dollars, despite the fact that the president of the state corporation, John Paul Prates, assured that there will be no outside intervention in the administration of the company, which, according to him, will continue to make profits. In the same hours, however, the Ministry of Mines and Energy asked Petrobras to suspend the sale of assets for 90 days “in order to allow a new evaluation of the national energy policy”.

Also weighing on the collective perception of Petrobras, the recent memory of the lava jato, the largest anti-corruption operation in the country’s history that uncovered the “Pandora’s box” of corruption in Brazil in which the PT played an important role. Lava Jato was triggered in 2014 by the discovery of a million-dollar corruption scheme involving oil company Petrobras and construction company Odebrecht.

Weighing also in the analysis of the latest events, the declarations of the president of the PT, Hoffmann’s blues. On Twitter, he said in the last hours that “it is time to build a fairer pricing policy at Petrobras, to end the PPI (international price parity) and to review the company’s indecent dividend distribution so that she can invest again and make Brazil grow”. The PPI guarantees international price parity through the dollarization of oil and allows Brazil to import whatever it needs. This parity was adopted in 2016 by the then President Michel Temer in an attempt to revive the country’s accounts after the dismissal of Dilma Rousseff. Petrobras sources said CNN Brazil that the PPI would not be changed, as Haddad also said, but added that “at least until the installation of the new board and management, scheduled for April”.

The same sources also denied Haddad about the alleged “cushion” that the minister said would allow Petrobras to lower the price of gasoline without political intervention. For the leaders of Petrobras heard by CNN Brazil any price changes would be made in accordance with the policy. Haddad also announced the creation of an interdepartmental working group to discuss the transparency of Petrobras’ pricing policy. The group will be composed of members of the Civil House and the Ministries of Energy, Economy and Planning.

The unknowns on the future of the economy also remain in the face of the replacement of the “spending limit», the mechanism created in the Temer government to control public spending. The only certainty, in fact, is the approval by Congress at the end of December of the Proposed constitutional amendment (PEC), which foresees an increase in expenditure of 169.1 billion reais, or about 32.7 billion dollars.

However, regarding the new mechanism, called “fiscal arcabouço” that the new government wants to create to replace the “spending cap”, there are only vague promises such that it will consist of rules that will give “predictability”. on the evolution of expenditure, but as indicated by an editorial in the Brazilian newspaper State of Sao Paulo. “Nobody in the market has a clue what’s going to happen”.

Above all, the characters hover like ghosts. In February, the stock market fell by 7.49% and the dollar appreciated by 2.92% against the real, while inflation rose to 5.9%. In summary, so far in communicating economic plans, the line of half-truths has prevailed, that if in the short term it can give the government pause to minimize clashes with congress and protests from the people, to medium term term it will be In the event of an economic crisis, it will force them to face the responsibility of their decisions before the country.

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