Brazil’s government may raise taxes this year as it cuts back on spending to meet fiscal targets, Finance Minister Guido Mantega said today.
“Raising taxes isn’t expected, although this could occur,” Mantega said in a conference call with analysts. “It is a type of backup we have in case we need to improve revenue.”
Mantega yesterday said the government would cut 44 billion reais ($18.7 billion) in spending from the 2014 budget as it tries to post a primary surplus equal to 1.9 percent of gross domestic product. The government doesn’t plan to cut any taxes in 2014 and will consider the economy rather than politics when deciding whether to stimulate growth, he said today.
Amid deterioration of public finances and higher debt in the world’s second-largest emerging market, Brazil faces the possibility of a credit rating downgrade ahead of presidential elections in October. Standard & Poor’s and Moody’s Investors Service last year lowered their outlooks on Brazil’s credit, both citing worsening of public accounts.
“Brazil has conditions to maintain the solidity of public accounts and a path of growing investment in the economy,” Mantega said. “So our rating should remain at its current state.”
Brazil’s economy expanded 2.2 percent in 2013, according to analysts surveyed by Bloomberg, marking its third-straight year of growth below 3 percent. While gross debt fell to 57.2 percent of GDP in December from the start of 2013, it was up from 54.2 percent two years earlier.
A primary surplus of 1.9 percent, which excludes payments on interest and would match last year’s level, would help reduce debt levels, Mantega said. President Dilma Rousseff, who is eligible to run for re-election, can still spend the 44 billion reais she earmarked for cuts this year if she wants, according to Brazilian law.
While the primary surplus target diminishes market concerns, focus is on the end result, Moody’s senior credit officer Mauro Leos wrote in an e-mailed statement yesterday.
Five-year credit default swaps, which protect bondholders against non-payment, were little changed at 178 basis points as of 2:21 p.m. local time after falling nine basis points yesterday.