Economy Minister Says Brazil Could Cut Fuel Taxes, Still Hit Budget Deficit Goals

RIO DE JANEIRO, BRAZIL –  Brazil may use any increase in federal tax revenues generated by a rebounding economy this year to pay for tax cuts, especially on fuel, rather than targeting it solely to reduce the budget deficit, Economy Minister Paulo Guedes said on Friday.

Speaking in a news conference alongside President Jair Bolsonaro, Guedes said such a move would still be consistent with the government’s commitment to getting public finances back on track after the deficit and debt blew out to record highs last year.

Guedes said the government is considering reducing levies on fuel and the electricity sector. He added that he would like fuel taxes to be cut before Brazil’s Congress approves a wider tax reform bill, a process which could take six to eight months.

The government’s current forecast is for a primary budget deficit – excluding interest payments – of 3% of gross domestic product (GDP) this year.

“But let’s say the economy grows more … and the deficit is 2.5%. Instead of 2.5%, we could make it 2.6% or 2.7%, a little bit more, to use this increase in revenue to help this sector,” Guedes said.

“This could happen,” he said, adding that “everyone” thinks the economy will grow by around 3.5% this year.

That would give the government room to help lighten the tax burden on fuel, Guedes said, adding that lower fuel taxes would also ease the strain on Brazil’s truckers who have threatened to go on strike across the country.

The total federal tax revenue last year was R$1.48 trillion (US$277 billion), down 6.9% from 2019, although revenues rebounded strongly in the second half of the year. Guedes last month described it as an “excellent result, given the situation.”

The government’s primary deficit excluding interest payments last year was a record R$743.1 billion, around 10% of GDP. Treasury Secretary Bruno Funchal said last week that Brazil will not return to a primary budget surplus until 2026 or 2027.