Fuel prices are rising in South America as local currencies weaken on the euro crisis. National governments have a choice: maintain fuel taxes, which are overwhelmingly progressive in countries where very few poor and most rich people have vehicles, or cut the fuel tax and make up the finance gap with some other sort of tax, which will quite likely be less progressive.
The same proposal has been made in the past week in Chile and Brazil. Of course everyone knows how this is going to play out. Chilean President Piñera, often referred to as a “fascist” by local lefties, is going to reward the rich, while Brazilian President Dilma Roussef, a former leftist guerrilla, will of course soak the rich.
Brazil cuts its tax, ostensibly to rein in inflation. Instead it might consider reining in credit card interest that can exceed 200% per year, sucking the blood of the middle class and increasing money supply, accelerating inflation. Yes, I said 200%.
Meanwhile, the far-right UDI party in Chile presented a request today to cut the gasoline sales tax. They were shameless, saying that it would help not only the middle class, but also the neediest. That, despite a vehicle ownership rate of about 3% among the poorest quintile of Chileans. The government spokesman was blunt, saying, everyone knows we can’t cut that tax right now.