BRASILIA (Reuters) – Brazil’s federal government subsidies surged to the highest level in six years in 2022, said the Planning Ministry on Wednesday, in a sharp increase driven by elevated borrowing costs and the implementation of new tax benefits, particularly on fuels.
In its annual report on the subject, the Planning Ministry emphasized that subsidies reached 581.49 billion reais ($118.55 billion) last year, equivalent to 5.86% of gross domestic product (GDP).
That marks a rise from 4.78% of GDP in 2021 and represents the steepest level since 2016, when it was 6.13%.
“Every time it becomes more expensive for the Treasury to refinance its debt, the cost increases for the government and the Union in terms of credit subsidies generated,” said Sergio Firpo, the secretary of monitoring and evaluation of public policy at the ministry.
Last year, Brazil’s central bank continued raising interest rates to battle inflation until a cycle-high of 13.75% in August.
The benchmark Selic rate has been kept steady since then, which has drawn frequent criticism from the new government of President Luiz Inacio Lula da Silva.
The data shows a significant increase in federal subsidies since 2003, the beginning of the series displayed by the ministry, when subsidies accounted for only 2.96% of GDP.
Finance Minister Fernando Haddad has stated that the government will seek to reduce undue tax advantages to strengthen public accounts and support new fiscal rules.
However, the government has decided to gradually reintroduce tax cuts previously implemented by former President Jair Bolsonaro on fuels. Moreover, Lula’s administration has chosen to link part of future revenue recovery to expenditure on new programs of tax benefits, such as the recently announced plan to boost the auto industry by granting companies tax credits on lower-priced vehicles.
($1 = 4.9050 reais)