Lula must return to charging gasoline tax – 02/25/2023 – Vinicius Torres Freire

Jair Bolsonaro removed taxes on fuel, one of the many electoral frauds he committed, blowing up government accounts. Luiz Inácio Lula da Silva is afraid to collect such taxes again.

It’s easy to understand. The return of the federal tax on gasoline will cause some increase in inflation and disgust among an electorate that, in the majority, did not vote for Lula. They are the least remedied, who usually have a vehicle.

Until Tuesday (28), Lula has to decide whether or not to extend the tax exemption (he has already done so for diesel). The Ministry of Finance wants the money. Lula’s political circle wants to avoid “reoneration”. Do you think you can do something about it, in the style of Dilma 1.

Lula should collect the tax again. Without this revenue, it has to borrow even more money, among other problems, as the government is in deficit.

Duty-free gasoline benefits the “richer” or less poor. Borrowing even more money benefits the very wealthy, the government’s creditors.

Very low taxation on fuels is an economic distortion: it misguides efficient consumption and investment decisions. It encourages the use of more polluting energy. Masking the economic and environmental cost of pollutants, artificially lowering their consumption, is an obstacle to the development of better alternatives.

What about inflation? If the economic policy turns out to be sensible, this readjustment will be diluted and the high cost in general will tend to cool down.

The so-called “political wing” of the government wants to push the problem with its belly. He says Lula should wait for Petrobras’ new pricing policy. That is, the oil company’s prices would no longer follow international quotations.

In summary, it is a question of more or less lasting price fixing. Thus, Petrobras should earn less. As a result, it will have fewer resources to invest and grow; your financing costs will increase. In this way, it will pay less taxes and dividends to the government, which badly needs that money. The problem goes out one door and comes back through another.

Perhaps an intelligent method will be invented to avoid excessive changes in Petrobras prices. However, even a well thought-out system would not lower fuel prices. That is, gasoline or diesel can become cheaper during world market upswings, but more expensive during downturns. At some point, the account appears.

Problem: as it is very difficult to predict the value of oil and derivatives, it would also be difficult to determine how long the oil company should keep its prices low or high beyond the account.

Faced with tax increases, the reaction is usually to want to pass the bill on to someone else, like the very rich. All right, we need to charge them more, because the government has a huge deficit and it will be socially and politically unfeasible to cut enough spending.

Instead of borrowing from the rich at high interest rates, it is better to borrow some of that money via taxes. Yes, it is possible to manipulate interest rates, but then you lose control of inflation (or worse).

Charging more tax is not simple. Increased taxation changes behavior. The taxable money goes elsewhere (and this is not about evasion). Moreover, at least in some cases, there is evidence of the economic theory of dead weight: the tax lowers the level of consumption and the revenue of companies, but does not increase government revenue by an amount equivalent to that lost by the private sector.

The total result, “social” as they say in economics, is negative.

It is easy to see that the subject is difficult. But keeping the deficit high, benefiting the richest, is the worst solution.

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