New fuel subsidies will cost the federal government R$ 7 billion per month, focusing on diesel, gasoline, and ethanol.
The Federal Government has announced a package of measures to subsidize fuels, which is expected to have an estimated fiscal impact of R$ 7 billion per month. The initiative aims to provide relief to consumers and primarily targets diesel, but also includes tax cuts for gasoline and ethanol. The actions were formalized through a decree and a provisional measure, which are set to be published in the Official Gazette (Diário Oficial da União).
The decision to expand subsidies reflects the executive branch’s concern with controlling inflation and ensuring greater predictability in fuel prices. The economic team detailed that the new subsidy policy will require a significant injection of public funds, which will be financed through extraordinary credit and additional tax revenue from the oil sector.
Detailed financial impact of the measures
The most significant cost burden falls on diesel. The new subsidy of R$ 1 per liter for producers and importers entails a monthly expenditure of R$ 5 billion. This amount is in addition to the existing subsidy, which totals R$ 1.12 per liter and remains in effect until the end of September, with an estimated cost of R$ 5.5 billion per month. Together, the actions concerning diesel represent a considerable fiscal effort.
For gasoline, the reduction of R$ 0.63 in PIS/Cofins taxes per liter will result in a monthly fiscal cost of R$ 1.7 billion. Meanwhile, the total exemption of federal taxes on ethanol, which previously amounted to R$ 0.19 per liter, represents an additional expense of R$ 300 million per month. These tax relief measures will remain in effect until the beginning of October.
Funding sources for the subsidies
Funding for the diesel subsidy will be secured through the opening of an extraordinary credit, a budgetary mechanism that allows for the allocation of resources for unforeseen or urgent expenses. Regarding the tax relief for gasoline and ethanol, the government plans to cover the costs with expected revenue of R$ 10 billion from additional income from the oil sector next month.
The new fuel subsidy policies demonstrate the Federal Government’s strategy of intervening in the market to moderate prices. The impact of these R$ 7 billion per month on the public budget and the Brazilian economy will be closely monitored. The expectation is that the measures will provide temporary relief, but the long-term sustainability of these tax breaks and their effects on fiscal policy and prices in other sectors of the economy remain a point of discussion.
