By Luiz Carlos Salomão
The government of President Luiz Inácio Lula da Silva has let an extra subsidy of R$ 1.40 (Brazilian reais) per liter of imported diesel lapse. The ordinance that created it expired on Friday, November 13, and Brazil's Finance Ministry said the benefit will not be extended. But the ministry itself admits it could reassess the measure if oil prices keep climbing, which keeps the market on alert.
In practice, the relief on imported diesel prices is over. The door to new spending, however, remains open.
A 30-day benefit that became a matter of state
The extra R$ 1.40 subsidy had been in force for 30 days. It was withdrawn while the government keeps other fuel aid in place, which shows that the Lula administration has not managed to break its dependence on subsidies. The Finance Ministry even said the measure could return to debate in the future, depending on how prices evolve.
More fuel subsidies remain on the table
This was not the first recent fuel decision. At the end of last month, the federal government renewed for another 30 days the subsidy of R$ 2.12 per liter of diesel sold in Brazil. Earlier this week, the Finance Ministry extended the exemption of federal taxes on gasoline and ethanol, along with the additional subsidy paid to ethanol producers.
All of this is set out in a decree signed by the president and valid until December 9. The estimated total impact is R$ 3.57 billion (Brazilian reais).
- Federal taxes on gasoline remain zeroed, at R$ 0.89 per liter.
- Federal taxes on ethanol remain zeroed, at R$ 0.19 per liter.
- The ethanol subsidy stays at R$ 0.428 per liter.
According to the economic team's calculations, the tax exemption on gasoline and ethanol will cost R$ 2.76 billion, while the additional ethanol subsidy will have an effect of R$ 813.41 million over 30 days.
Who pays the bill
To cover the cost, the government is betting on extra revenue from higher oil prices, such as larger royalties and taxes on the sector. The oil export tax, extended until December 31 this year, is also part of the equation. In other words, part of the fiscal balance depends on oil prices rising, something nobody controls.
What it means for drivers and inflation
Without the benefits, the tendency is for pressure at the pumps and effects on inflation. The market expects prices, especially for diesel, to stay high throughout 2027. Inside the government, the guidance is to reduce subsidies, but the pace of that withdrawal depends on how oil behaves. The stated intention is to avoid sharp increases for consumers and to limit the pass-through of costs to other products.
The challenge now is to explain how a government that holds prices down with public money will end that dependence without dumping the bill on those who fill up their cars every day.
Why it matters
Diesel is the fuel that powers trucks and much of Brazil's freight transport, so its price spreads quickly to other goods. Lula, from the left-wing Workers' Party (PT), is using public money to contain fuel prices, and the fiscal cost and the exit strategy are now at the center of the debate over inflation and public accounts.
VDD Analysis
The government sells the end of the subsidy as a sign of responsibility, but its own numbers show the opposite: billions in benefits, a decree valid until December and an exit that depends on the mood of the oil market. Subsidies do not create cheap prices; they only push the bill onto the budget and, later, onto the taxpayer. Lower taxes and more predictability would be the more honest path for Brazilians' pockets.
