BRASILIA (Reuters) - A debate has broken out among senior aides to Brazilian President Luiz Inacio Lula da Silva over fuel taxes, underlining the competing views within his circle over the future path of his nascent leftist administration.
Former far-right Jair Bolsonaro unveiled the fuel tax cut last year as he sought to ease inflation and win over voters ahead of the election which he eventually lost to Lula. Since Lula's victory, debate has raged within his Workers Party (PT) over what to do with the costly and popular measure.
Lula's Finance Minister Fernando Haddad has long opposed the waiver, arguing privately that it hurts public coffers and undermines Lula's green agenda, according to two sources from the ministry who requested anonymity to speak candidly. Publicly, Haddad has said ultimately it would be up to Lula to decide.
"The decision (to extend the tax waiver only to February) was taken by the president, who, obviously, can revisit the matter," he said after a January meeting with Febraban, the lobbying group representing Brazilian banks.
Others in Lula's circle have convinced the president to extend the waiver on diesel and biodiesel until December of this year, and on gasoline and ethanol until February.
Tensions are now mounting over whether to extend further the gasoline and ethanol tax waiver.
In his fiscal plan, presented in January, Haddad included the reintroduction of taxes on gasoline and ethanol starting in March. That would generate 29 billion reais ($5.6 billion) in federal revenue and add fiscal backing to Lula's social spending plans.
But this stance is seen as too market-friendly by some of the leftists in Lula's camp, and on Friday that debate broke out into the open.
In a series of Twitter posts, Congresswoman Gleisi Hoffmann, president of Lula's Workers Party (PT), said fuel taxes should only resume once state-run oil giant Petrobras defines a new pricing policy.
"This will be possible starting April when the Board of Directors is renewed with people committed to the reconstruction of the company and its role for the country," she said.
Hoffmann added that a "fairer pricing policy" is needed for Petrobras, which currently pegs domestic fuel prices to international oil rates, which makes pump prices more expensive when the commodity and the U.S. dollar appreciate.
"We are not against taxing fuels, but doing so now penalizes consumers, generates more inflation, and violates campaign commitments," she wrote.
The Finance Ministry and the Presidential Palace did not immediately respond to requests for comments.
Vice-President Geraldo Alckmin said on Friday the government had not yet made a decision on fuel taxes.
Central bank governor Roberto Campos Neto, who is under pressure from Lula and his allies to reduce interest rates, has said the re-taxation of fuels would add short-term inflationary pressure, but would improve Brazil's fiscal situation, arguing it would have "a beneficial effect going forward."
BRASILIA: Brazil will tax oil exports to raise an estimated 6.6 billion reais (US$1.3bil or RM5.8bil) while gradually removing fuel tax breaks, a victory for Finance Minister Fernando Haddad, who’s struggling to shore up public finances.
State-controlled oil giant Petroleo Brasileiro SA extended losses on the news and closed down 3.5% in Sao Paulo. Smaller oil producers, 3R Petroleum and Petro Rio, also fell.
Haddad said the export tax rate will be set at 9.2% and will last for four months, until fuel tax exemptions given by the previous government are completely eliminated.
The move is part of a plan to balance the budget in Latin America’s largest economy and to help the central bank lower interest rates, according to the minister.
“The measures open up an absolutely necessary space for Brazil to start reducing interest rates,” Haddad told reporters in Brasilia.
“The government is going to do its part, waiting for the central bank to react as it has signalled in its minutes.”
Lowering Brazil’s benchmark interest rate, currently at 13.75%, has become a priority for President Luiz Inacio Lula da Silva, who took office again on Jan 1 and wants to boost economic growth to deliver on campaign pledges.
Haddad himself has been under pressure from more radical members of Lula’s Workers’ Party, who are against an increase in fuel prices that could hurt the president’s popularity.
Haddad denied that the government is intervening in the way Petrobras, as the oil company is known, sets fuel prices. It is a sensitive topic for investors because the company has a history of subsidising fuel to help contain inflation, which made it the world’s most indebted oil company during the previous decade. — Bloomberg
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