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Fuel Tax Cut Extension Reports May Further Cloud Fiscal Outlook

BRAZIL
  • In his inauguration speech, President Lula criticised the spending cap and said that it will be revoked. Lula also mentioned new labour legislation, structuring of a new growth acceleration program, and highlighted the role of public banks as fundamental for economic growth.
  • There was also revocation of decrees that facilitated the possession of weapons, the re-establishment of the Amazon fund, the withdrawal of state companies such as Petrobras and Correios from the privatization plan.
    • Additionally, Itaú have noted the extension of the exemption of federal taxes on gasoline and ethanol for 2 months and cooking gas and diesel for 1 year could have an impact of around BRL 30 billion on fiscal results.
  • The upward pressure on the US Dollar is likely to add further pressure on the Brazilian Real, that notably declined around 1.5% throughout yesterday’s first trading session of the year. The potential for this momentum to be exacerbated could stem from newspaper Estado reporting that some of Lula’s allies want the tax exemption on gasoline to be extended for six months or more as Petrobras may need more time to change its pricing policy to compensate for the increase in prices.
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