HomeBeautyBolsonaro's plan to contain inflation reaches the Brazilian Congress

Bolsonaro’s plan to contain inflation reaches the Brazilian Congress

Brazilian parliamentarians are debating three proposals to reduce the fuel price and other items, the president’s latest attempt Jair Bolsonaro to contain the inflation that is eroding his popularity less than four months before the October election.

The proposals reached the Senate on Wednesday and are expected to be voted on next Monday, as the administration wants them passed before Congress begins its mid-year recess in July.

Fuel prices have become a headache for most global leaders after the pandemic and the war in Ukraine. For Bolsonaro, time is running out as he trails former president Luiz Inácio Lula da Silva in all polls, with a growing number of Brazilians blaming him for rising prices.

Inflation would be 2.9 percentage points lower this year if the plan is fully approved, according to local asset manager XP Inc. .

Here are the three proposals and their main points:

tax limit

  • A proposal that caps a state tax known as ICMS on fuel, electricity, public transport and telecommunications at 17% to 18% is currently in the Senate after being passed by the House.
  • This week, at the request of the government, the project’s rapporteur amended the proposal that now also removes a series of federal taxes on ethanol and gasoline.
  • As a complementary bill, it needs to be approved by 41 of the 81 senators and 257 of the 513 deputies of the Chamber
  • The proposal allows states to reduce debt to the federal government if the revenue from the ICMS levied on these items falls by more than 5%.

Scrap Taxes

  • The constitutional amendment requires the Treasury to compensate for the loss of revenue for states that agree to completely eliminate the ICMS tax on diesel, natural gas and cooking gas by the end of the year, and reduce the same tax on ethanol to 12%.
  • It sets a limit of 29.6 billion reais (US$6 billion) for this compensation, which would be paid by the Treasury in five monthly installments of up to 5.9 billion reais (US$1.2 billion)
  • As a constitutional amendment, it must be approved by 49 senators and 308 congressmen in a total of four voting rounds, two in the Chamber and two in the Senate.

Biofuels Account

  • This constitutional amendment establishes a favorable tax regime for biofuels to ensure that they remain cheaper than fossil fuels.
  • Details will be determined in supplementary law
  • It also needs to be approved by 49 senators in two Senate votes and 308 deputies in two House votes.

Governors are critical of the proposals, saying they will mean a total loss of revenue of about 100 billion reais ($20.5 billion) a year. Bolsonaro’s government calculates these losses at 65 billion reais ($13.3 billion).

“The price reduction target will not be achieved with a major fiscal crisis in states and municipalities,” Bahia governor Rui Costa told journalists after meeting with the project’s rapporteur, Senator Fernando Bezerra.

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