Brazil's Economy Ministry tries to limit spending on fuel-related subsidies, sources say

© Reuters. Brazil's Economy Minister Paulo Guedes speaks during a opening ceremony of the OECD meeting at the Itamaraty Palace in Brasilia, Brazil June 21, 2022. REUTERS/Adriano Machado

By Marcela Ayres and Bernardo Caram

BRASILIA (Reuters) - Brazil's Economy Ministry is trying to limit the cost of higher cooking gas subsidies and a new cash transfer program for truck drivers, which the government is envisaging as a way to ease the impact of soaring fuel prices in an election year, said five sources familiar with the matter.

The ministry wants the two measures to cost between 4 billion reais and 6 billion reais ($770 million-$1.2 billion) this year, according to two of the sources, who requested anonymity as the discussions are preliminary.

The idea is that these measures will be part of a proposed amendment to Brazil's constitution, which will include proposals already announced by the government, such as lower federal fuel taxes and compensation to states for state fuel taxes they forego.

The Economy Ministry, which did not immediately respond to a comment request, does not want the total cost of the package, which will effectively bypass a constitutional spending cap, to exceed 50 billion reais, said the sources.

Previously, the ministry was against the attempt to bypass the cap. But President Jair Bolsonaro has been pushing for inflationary relief while trailing former president Luiz Inacio Lula da Silva in polls for this year's elections, which are slated for October.

By including the measures in a constitutional amendment, the government is also looking to bypass existing legislation that largely bars the creation of new benefits in the final six months of a presidential mandate.

All sources indicated that the final format of the measures is not yet defined.

One of them said that Economy Minister Paulo Guedes wanted a maximum of 2 billion reais for additional cooking gas subsidies and 4 billion reais for truck drivers, many of whom are loyal Bolsonaro supporters.

One of the alternatives on the table involves granting a monthly aid payment of 600 reais to truck drivers, at a total cost of 3 billion reais. Another source indicated that a benefit of 1,000 reais would fit in the budget if it were paid only to 600,000 truck drivers, though the ministry has not suggested the amount.

The measures gained increased traction after state-run oil firm Petrobras announced last week it would raise gasoline and diesel prices, triggering generalized protests in the political world and adding pressure to inflation that hit 11.7% in the 12 months to May.

($1 = 5.19 reais)