Rousseff Says Brazil Has No Fiscal Room to Further Reduce Taxes

Brazil’s President Dilma Rousseff sees no room in the budget for additional tax cuts even as Latin America’s biggest economy continues to slow ahead of this year’s national elections.

“The federal government has reached its limit,” Rousseff, who is up for re-election in October, said in a meeting with foreign correspondents last night. The administration has already implemented “deep” tax cuts, she said.

The worst economic performance during any presidency in over two decades coupled with rising living cost have eroded Rousseff’s support ahead of general elections. The central bank halted last week the world’s longest tightening cycle as her administration struggles to tame consumer prices without further jeopardizing growth.

Rousseff said growth will accelerate when the global economy recovers. She said inflation is slowing and under control.

Only Argentina and Venezuela will grow slower than Brazil among major Latin American economies this year, according to the latest IMF forecast. Economists in the latest central bank poll project gross domestic product to expand 1.5 percent this year, down from a 2.5 percent in 2013.

Inflation accelerated to 6.31 percent in the 12 months through mid-May from 5.63 percent in mid-January. Industry and consumer confidence have dropped to the lowest levels in over five years, as falling purchasing power has undercut demand.

Bad Shape

Two out of three Brazilians say the $2.2 trillion economy is in bad shape, according to a poll released by the Pew Research Center yesterday.

Rousseff’s lead over Senator Aecio Neves fell to 17 percentage points in a May 7-8 Datafolha from 28 points in February. She was supported by 37 percent in the May poll, which had a two percentage-point margin of error. That wouldn’t be enough for her to win in the Oct. 5 first round, where a candidate must have more votes than all others combined.

Her popularity started dropping in June 2013 after more than 1 million people took to the streets to protest against an increase in bus fares, the quality of public services and overspending on the World Cup, which starts June 12.

Preparations for the World Cup have been beset by delays, cost overruns and protests over poor public services. Nearly 6 out of 10 people say hosting the Cup is bad for Brazil because it takes money away from schools, health care and other services, according to the Pew poll.

State Visit

The price tag for the 12 new or refurbished World Cup stadiums ballooned to 8 billion reais ($3.5 billion), almost four times the initial 2007 budget. Three of the 12 host cities -- Brasilia, Cuiaba, and Manaus -- have no first- or second-division teams.

Rousseff said a state visit to the U.S. is an important step to improve relations between the two nations. She canceled a trip to Washington last year amid accusations President Barack Obama’s administration was spying world leaders, including her.

She said a state visit will only take place after the U.S. ensures Brazil that it will no longer intercept communications from government officials.

To contact the reporters on this story: Arnaldo Galvao in Brasilia Newsroom at agalvao1@bloomberg.net; Raymond Colitt in Brasilia Newsroom at rcolitt@bloomberg.net

To contact the editors responsible for this story: Andre Soliani at asoliani@bloomberg.net Robert Jameson

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