Who will pay for Brazil’s subsidies to diesel?

. Jun 01, 2018
diesel prices To please truckers, Brazil will slash diesel prices.
diesel prices

To please truckers, Brazil will slash diesel prices.

After Brazilian truckers staged a 10-day strike and drove the country into chaos, the federal administration has agreed to lower diesel prices through subsidies, as Petrobras’s pricing policy will remain – at least for now. President Michel Temer announced a BRL 0.46/liter reduction, which will cost at least BRL 9.6 billion in this year’s budget.

According to the federal spending cap approved in 2016, the federal administration cannot create new expenses without slashing costs to compensate. So, how is the government paying for that reduction in fuel prices?

Part of it has already been announced: Congress approved a project to implement taxes on the payroll for companies in the most productive sectors. That, however, will account for BRL 0.11 of the BRL 0.46 reduction. The other BRL 0.30/liter will come from budget cuts in nearly all areas of the federal administration – including education and healthcare programs.

</p> <p>Ironically, even the Ministry of Transportation – which defends the truckers’ demands – will suffer major budget cuts, with budgets for patrolling in federal roads and infrastructure improvement projects being slashed. Here are the sectors that will most suffer from the cuts:</p> <hr /> <p><img loading="lazy" class="alignnone size-large wp-image-4709" src="" alt="diesel prices" width="990" height="1024" srcset=" 990w, 290w, 768w, 610w, 1180w" sizes="(max-width: 990px) 100vw, 990px" /></p> <hr /> <p>All of that price-controlling policy, however, is only good for the price at the refineries. How much gas stations will charge consumers is up to them – at least in theory. The president’s chief of staff, Eliseu Padilha, announced that the administration will fine stations that don’t relay the diesel price cuts to the final consumer. Fines can reach up to BRL 9.4 million.</p> <h3>Loss of competitiveness</h3> <p>Business associations complain that the government’s solution to the crisis will slash incentives for exporters – which will reduce the competitiveness of Brazilian companies abroad and increase their costs. The National Industry Confederation released a statement saying the cuts to government tax exemption programs threaten Brazilian exports and the country’s GDP.</p> <p>The National Association of Chemical Industries says that alteration in the sector’s special tax regimen, which allowed industries to pay fewer taxes, will hit Brazilian companies hard and inflate prices. According to the entity, as taxes increase, prices practiced by foreign companies become more attractive, meaning that Brazilian products will lose market share.</p> <h3>Minimum freight prices</h3> <p>On Wednesday, the National Land Transportation Agency (ANTT) published a table of minimum freight prices to be used from now on. Despite it being a request from truckers, the table could make their lives harder due to its complexity and ANTT’s lack of structure to enforce its rules.</p> <p>The table establishes a system for different prices according to the type of cargo (for example, if it’s solid, liquid, refrigerated, or dangerous to transport) and distance. Prices are increased with every 100 kilometers traveled.</p> <p>According to representatives of the National Agricultural Confederation (CNA), it is likely that the prices set by ANTT will not be used in the real world. “The government wasn’t clear about what the penalty would be for transgressions, nor about how ANTT will monitor freight prices across the country. Today, it has no structure to do that,” CNA’s infrastructure councilor Elisangela Lopes <a href="">told</a> <em>Folha</em>.</p> <p>One of the biggest problems is the so-called “return freight,” when a trucker takes cargo to a port and seeks another job to not return home with an empty vehicle. In these cases, truck drivers usually accept lower rates. If a minimum is imposed, companies are expected to hire labor from formal transportation firms rather than self-employed truckers.</p> <p>“The intention is there, but it could cause more damage than good,” says the Association of Brazilian Cereal Producers.

Read the full story NOW!

The Brazilian Report

We are an in-depth content platform about Brazil, made by Brazilians and destined to foreign audiences.

Our content is protected by copyright. Want to republish The Brazilian Report? Email us at