Brazil’s state oil company Petrobras reported record profits on 1 March, as conservative parties in congress served notice of their intention to challenge the government over fuel taxes.
Analysis:
The government led by President Luiz Inácio Lula da Silva this week announced the end of a petrol and ethanol tax waiver on domestic fuel prices, and a new temporary 9.2% tax on crude oil exports. Both decisions are ‘provisional measures’ (medidas provisórias - MPs) which come into force by government decree and last for four months, by which time they must be approved by congress. A group of conservative members of congress is already threatening not to vote to extend these MPs in a bid to force the government to make concessions.
- Members of the centrão block of conservative parties like the Progressistas (PP), the Republicanos, and part of the Partido Liberal (PL, the party of right-wing former president Jair Bolsonaro [2019-2023]) say they will withhold support for the MPs in an attempt to force the government to include them in wider negotiations on congressional alliances. They have focused particularly on the 9.2% crude oil export tax, saying they may not support it when it comes up for a renewal vote in four months’ time.
- In return for their support these parties are seeking to force the government to make concessions, such as offering their members jobs in public administration or other positions of influence. Government calculations indicate that there is a majority in the senate to support the MPs, but that the administration may struggle to achieve the necessary quorum in the lower chamber of congress.
- The finance minister, Fernando Haddad, met deputy congressional leaders on 28 February in order to discuss how to handle the tax waiver in the legislature.
Looking Ahead: The oil and gas industry fears that the export tax could be prolonged beyond the initial four months. Whether that happens or not will depend on the position taken by conservative parties. The debate on the desirable level of fuel taxes is likely to continue for much of this year.
