Unpopular measures will be inevitable
The peacemakers have already been called, but the decision to keep tax breaks on fuels sent bad signals in two central areas of the government: the economy and the environment. First, because it halted the most forceful effort of Finance Minister Fernando Haddad, who intends to put in place a fiscal adjustment in the first quarter. He had said that the tax breaks would not be extended, which would bring R$52 billion more in tax collection.Second, because this measure stimulates the consumption of fossil fuels at a time when Brazil is trying to reposition itself in the world as an environmental powerhouse. Plus, the tax cut on gasoline is a measure that benefits the middle class and diverts funds from the public coffers that could be destined to social emergencies.The question mark is what political price President Luiz Inácio Lula da Silva is willing to pay to adjust public accounts.The extension of tax breaks on fuels, which will represent a waiver of R$25 billion this year, was taken amid rumors that Petrobras was preparing to adjust fuel prices on January 1. This would be a good pretext for criticism from former President Jair Bolsonaro’s followers, as they made this issue a motto of their election campaigns.Another explanation is that the extension will give time for the new Petrobras board to take office. In the explanatory document sent by the federal government to Congress, the justifications are: to give time to structure a pricing policy and the risk of high inflation.Whatever the reason, it seems that the government has little appetite for taking unpopular measures. However, there is no alternative if the idea is to establish a predictable horizon for public debt and thus restore the confidence of economic agents.One of the few hints about the adjustment resting on Mr. Haddad’s table could be a tough measure: the end of the deduction of medical expenses of the Individual Income Tax (IRPF). Mr. Lula himself hinted this during the presidential transition. He said it is "unfair" that someone like him have medical examinations and appointments in private-sector hospitals, then deduct these expenses from the income tax, while poorer Brazilians do not deduct them because they cannot afford health insurance.Mr. Haddad revisited the topic Tuesday in an interview to Brasil 247, a local website. He raised the issue of the social justice of the deduction. Meanwhile, one person in the audience asked that the deduction for health expenses be...
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