Brazil Needs to Cut Spending to Boost Efficiency, Levy Says

  • Levy says Brazil has everything it needs to keep growing
  • Rousseff decided Saturday to suspend CPMF tax, Folha reports

Brazil must reduce public spending to combat its economic challenges and to become more efficient, Finance Minister Joaquim Levy said on Saturday.

“We can’t stand still, waiting for the loss of investment grade,” Levy said at an event in Campos do Jordao, Sao Paulo state. “We need to implement a quality shock to public spending.”

Brazil, South America’s largest economy, has everything it needs to continue growing and must implement structural changes, the minister said. Simplifying taxation should be a priority, he said.

Reintroducing the so-called CPMF tax on financial transactions “would be good if it were used as a source of revenue for the health area for a few years,” Levy told reporters at the event. Yet President Dilma Rousseff decided in a meeting Saturday afternoon with Chief of Staff Aloizio Mercadante and Budget Minister Nelson Barbosa to scrap plans to revive the tax, newspaper Folha de S.Paulo reported, without saying where it got the information.

Brazil is due to announce its 2016 budget bill on Monday, which was supposed to include estimated revenue from the planned reintroduction of CPMF and the Cide tax on services, two people with knowledge of the matter said Aug. 27. Government allies in Congress, including Senate President Renan Calheiros, criticized plans for CPMF and said the government needs to cut spending before it raises taxes.

Brazil will face a budget shortfall of about 130 billion reais ($36 billion) for 2016, after the government reduced its estimate for revenues by 60 billion reais and raised its forecast for compulsory spending by 80 billion reais, Folha reported Saturday. The government reduced its growth forecast for 2016 to less than 0.5 percent from an estimate of 1.3 percent made in April, according to Folha.

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