Brazil to phase out subsidy for diesel more slowly than for gasoline, minister says
- The 0.44-real-per-liter gasoline subsidy is expected to be scrapped in coming days
- Moretti said the 12% crude oil export tax may end this month or be lowered
- Diesel subsidy phase-out aims to prevent price spikes, fuel supply disruptions
Brazil's government will take longer to phase out its diesel subsidy than the gasoline benefit, reflecting concerns the process must be handled carefully, even after the drop in global oil prices, to avoid price shocks or fuel shortages, Planning and Budget Minister Bruno Moretti told Reuters on Thursday.
A gradual withdrawal of the subsidy, Moretti said, is consistent with the government's fiscal-neutrality goal, with the cost offset by extraordinary oil revenues that are still due to the Treasury.
This approach, he said in an interview, will ensure that "the diesel market has the predictability needed to operate and supply society."
A gasoline subsidy of 0.44 Brazilian real ($0.0844) per liter will be removed over a "much shorter" period, he added. The subsidy is expected to be scrapped in the coming days.
A rapid removal of the 1.12-real-per-liter diesel subsidy, he said, could trigger a sharp increase in prices, because the recent fall in oil prices following a preliminary peace deal between the U.S. and Iran has not yet been fully passed on to consumers.
The price of Brent crude LCOc1 soared to above $118 a barrel following the start of the war in the Middle East in late February. It was trading at $71.51 a barrel on Thursday.
Brazil's government is also considering whether to end or reduce a 12% export tax on crude oil imposed in March.
"We certainly will not keep it under the current scenario," Moretti said.
The executive order establishing the tax expires next week. But the government could keep it in place at a lower rate through an administrative decision, he added.
Dividend tax shortfall. Despite weak revenue from a dividend tax introduced in January to offset a tax break for middle-income households, Moretti said no additional measures would be needed to cover the shortfall.
The minister said stronger-than-expected collections in other areas, which he did not specify, would comfortably make up the difference.
"In the worst case, any difficulty in achieving the target would be addressed through spending freezes," he added.
According to Moretti, the next bimonthly revenue and expenditure report, due later this month, will show the government remains on track to achieve its fiscal target of a primary surplus equivalent to 0.25% of gross domestic product this year.
Because that goal includes a tolerance band of 0.25 percentage points on either side and allows some expenditures to be excluded from calculations, the government could effectively post a primary deficit of up to 0.50% of GDP and still meet the rule.
President Luiz Inacio Lula da Silva's government has operated since May under a 23.7 billion reais spending block due to pressure from mandatory spending.
Moretti said the government's economic team expects no significant easing in expenditure pressures, though it may be able to partially reverse the spending block this month.
($1 = 5.2150 reais)
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