Brazil will tax oil exports to raise an estimated 6.6 billion reais ($1.3 billion) while gradually removing fuel tax breaks in a victory for Finance Minister Fernando Haddad who’s struggling to shore up public finances.
(Bloomberg) — Brazil will tax oil exports to raise an estimated 6.6 billion reais ($1.3 billion) while gradually removing fuel tax breaks in a victory for Finance Minister Fernando Haddad who’s struggling to shore up public finances.
State-controlled oil giant Petroleo Brasileiro SA extended losses on the news and closed down 3.5% in Sao Paulo. Smaller Brazilian oil producers 3R Petroleum and Petro Rio also fell. Haddad said on Tuesday the export tax rate will be set at 9.2% and will last for four months, until fuel tax exemptions given by the previous government are completely eliminated.
The move is part of a plan to balance the budget in Latin America’s largest economy and to help the central bank lower interest rates, according to the minister.
“The measures open up an absolutely necessary space for Brazil to start reducing interest rates,” Haddad told reporters in Brasilia. “The government is going to do its part, waiting for the central bank to react as it has signaled in its minutes.”
Lowering Brazil’s benchmark interest rate, currently at 13.75%, has become a priority for President Luiz Inacio Lula da Silva, who wants to boost economic growth to deliver on campaign pledges. Haddad himself has been under pressure from more radical members of Lula’s Workers’ Party, who are against an increase in fuel prices that could hurt the president’s popularity.
Haddad denied that the government is intervening in the way Petrobras, as the oil company is known, sets fuel prices. It is a sensitive topic for investors because the company has a history of subsidizing fuel to help contain inflation, which made it the world’s most indebted oil company during the previous decade.
Read More: Petrobras Sinks on Fears It Will Cut Dividends, Subsidize Fuel
Energy Minister Alexandre Silveira, who joined Haddad to announce the plan, said the oil firm needs to be more transparent about its pricing and investment policies. One of the things that need to be clearer, he said, is why Petrobras took so long to cut fuel prices when it could have done it weeks ago. Haddad and Silveira said they will create a government work group to discuss transparency in the company’s policies.
–With assistance from Daniel Carvalho.
(Updates with energy minister comments in final paragraph.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.