Government resumes “love affair” with automakers and prepares incentives

The federal government should announce on Thursday (25), Industry Day, a package of measures to make popular cars cheaper and stimulate the automotive chain, recycling a policy adopted in previous administrations. Among the planned actions is the reduction of taxes for the sector, contrary to what is advocated by the Minister of Finance, Fernando Haddad, who is critical of the volume of tax incentives in the country.

Exemptions for automakers were among the main tools of PT governments to warm up the economy, and are yet another initiative from the past that President Luiz Inácio Lula da Silva (PT) decides to resume in the current administration.

In Lula’s second term and in the first of Dilma Rousseff (PT), the then Minister of Finance, Guido Mantega, practically became a poster child for the sector. In press conferences, he even urged consumers to run to dealerships before the tax incentive ends.

Today, the sector’s main interlocutor is Vice President Geraldo Alckmin (PSB), who is also Minister of Development, Industry, Commerce and Services and has reopened the government’s doors to the demands of automakers.

For “popular car”, government evaluates credit to the industry, tax cut and subsidized interest to the consumer

According to the information made public so far, the main objective of the new package is to make models available on the market priced between R$50,000 and R$60,000. Today, the cheapest passenger cars for sale in Brazil are the compact Fiat Mobi and the Renault Kwid, with a 1.0 engine, both sold for R$69,000 in the most basic version.

According to information already collected by different press vehicles, the plan would include lines of credit for industry, a cut in the Tax on Industrialized Products (IPI) and encouragement for the nationalization of manufactured goods. The government is still trying to convince governors to reduce the Tax on Circulation of Goods and Services (ICMS), which is a state responsibility.

For the consumer, subsidized interest rates for vehicle financing should be announced, in addition to longer terms for payment of installments. One of the ideas under discussion is to allow the use of part of the Severance Indemnity Fund (FGTS) as a kind of guarantee in case of default.

At the end of 2021, the economic team of former President Jair Bolsonaro (PL) studied launching a microcredit program that would use FGTS resources as collateral, but the initiative did not go ahead. At the time, members of the Board of Trustees said they were surprised by the proposal, for which they had not been previously consulted.

The Lula government’s idea of ​​resorting to the Fundo de Garantia to move the car trade contains a contradiction. It is aired at the same time that the Minister of Labor, Luiz Marinho, openly talks about ending the anticipation of the birthday withdrawal, one of the cheapest credit modalities in the country and which uses the FGTS as guarantee.

In the package that will be announced this week, the government considered giving incentives to the production of models powered exclusively by ethanol, but the idea would have been rejected by the automakers, who claimed that it is difficult for new investments and that flex engines, in production, can now run powered only fuel alcohol.

Despite this, the package must include incentives for the local production of less polluting cars, including hybrid and electric ones, using energy efficiency as one of the criteria for granting tax benefits. Still as a way to encourage the manufacture of these models in the national territory, the Import Tax on electric cars, which has been zeroed since 2015, would be gradually resumed.

The plan would not be limited to entry-level models, and could make cars worth up to R$ 100,000 cheaper, which would remove as few optional items as possible.

During the first meeting of the Sustainable Economic and Social Development Council, at the beginning of the month, Lula criticized car prices in Brazil. “Which poor person can buy a popular car for R$90,000? A R$90,000 car is not popular. It’s for the middle class,” she said.

The measures should be announced at an event scheduled for 9 am on Thursday, at the headquarters of the Federation of Industries of the State of São Paulo (Fiesp). On the 15th, during his participation in the 5th São Paulo Development Forum, Alckmin said that the government was preparing “good news” for the 25th.

According to Fiesp, the presence of Lula, Alckmin, Haddad and the president of the National Bank for Economic and Social Development (BNDES), Aloizio Mercadante, are confirmed. The president of the National Association of Automotive Vehicle Manufacturers (Anfavea), Márcio de Lima Leite, will also be present. The event will be closed by the governor of São Paulo, Tarcísio de Freitas (Republicans).

Incentive to automakers contradicts Haddad’s intention to cut tax benefits

The exemption for the sector goes against what the Minister of Finance defends, who, in the search for new sources of revenue, has already said he has the goal of cutting a quarter of the tax waivers granted to certain sectors, which would generate approximately R$ 150 billion in additional collection.

The measurement results are also controversial. Tax benefits granted to automakers installed in the North, Northeast and Midwest regions through the so-called Automotive Policies for Regional Development (PADR), have already cost more than R$ 50 billion to public coffers since 2010, without the expected effects, according to an audit carried out. by the Federal Audit Court (TCU) and by the Federal Comptroller’s Office (CGU).

The program was implemented during the government of former President Fernando Henrique Cardoso (PSDB) and successively extended by Congress, and is now valid until the end of 2025. According to the joint audit by the TCU and the CGU, the policies “had a small and localized impact in GDP per capita, in general employment and in technical-scientific employment, thus not contributing to regional development, its main objective”.

Between 2017 and 2021, the waiver was more than BRL 5.6 billion per year with the PADR, on average. “A cost that is redistributed to all other taxpayers,” the auditors noted.

The auto industry, however, defends the initiatives and hopes that the new package of measures will help the sector recover, in stagnation since the beginning of the pandemic, in 2020. At the moment, several automakers have production temporarily suspended or have cut work shifts factories due to component supply problems and low demand.

“Anything that is done to warm up the market is very welcome, respecting important requirements,” he told the newspaper. The State of São Paulo the president of the National Association of Motor Vehicle Manufacturers (Anfavea), Márcio de Lima Leite.

Automakers have relied on government incentives for nearly 70 years

Incentives for the automotive industry have been the practice of Brazilian governments since the 1950s, when then-president Juscelino Kubitschek granted differentiated exchange rate treatment for the importation of machinery and equipment for Ford to set up in the country.

Since redemocratization, measures in this sense have been adopted by former presidents Fernando Collor, who exempted automakers from taxes to contain inflation, and Itamar Franco, who zeroed the IPI on basic models and, in 1993, made Volkswagen resume production of the Beetle, which had been suspended since 1986.

Years later, temporary IPI reductions for vehicles were adopted by the Lula government as “anti-cyclical” policies to sustain the country’s economy after the shock of the global financial crisis at the end of the 2000s.

In December 2008, Guido Mantega announced tax cuts that would initially last until March 2009, but were successively extended and only ended in March 2010. The minister repeated the recipe in the Dilma government, with new IPI reductions between 2012 and 2014.

These exemptions helped the sector to maintain jobs and increase production, which reached record levels. However, the measures were at the same time a typical case of “picking winners”. Instead of promoting a general and linear tax reduction, the government opted to stimulate a specific industry, owner of one of the most powerful lobbies in the country. “Addicted” to benefits, in the following years the sector showed great difficulty in growing without some kind of official stimulus.

Another public policy for automakers was Inovar-Auto, launched by Dilma in 2012. The program granted IPI reduction to companies that committed to investments in research and development and energy efficiency goals.

There were also minimum requirements for local content, which led the World Trade Organization (WTO) to condemn Brazil for illegal foreign trade practices. Automakers, however, once again pressured the government for a new “industrial policy” and in 2018 Michel Temer (MDB) reissued the initiative with adjustments, under the name Rota 2030.

In the Bolsonaro government, no new specific benefits were issued for the automotive sector. The 35% reduction in the IPI carried out in 2022 was linear, valid for industrialized goods in general – and not just vehicles.