Rousseff Veto Signals More Brazil Fiscal Control Next Term

Brazil’s President Dilma Rousseff vetoed a budget law, signaling increased fiscal discipline as she prepares to nominate Banco Bradesco SA asset management chief Joaquim Levy as her finance minister tomorrow.

The bill that was approved by congress on Nov. 5 would have allowed tax cuts without identifying revenue sources to offset them. Justifying the veto that was published today in the Official Gazette, Rousseff said the bill had been proposed at a time when revenue was rising.

“Therefore, the veto is justified because of a change in the economic cycle,” Rousseff wrote in the gazette.

Brazil’s budget deficit in September was the widest in more than a decade as the government increased spending and extended subsidized credit to fuel growth that is forecast to slow to 0.3 percent this year. The veto is the first sign that Rousseff is moving toward increased fiscal discipline in her second term, said Jankiel Santos, chief economist at Espirito Santo de Investimento.

“It lends a bit more seriousness to fiscal policy,” Santos said by phone from Sao Paulo. “Now the government needs to do more, and that includes confirming Levy and adopting long-term budget cuts.”

The real appreciated 1.1 percent to 2.5021 per U.S. dollar at 1:29 p.m. local time.

Cabinet Change

Rousseff is expected to appoint Levy, 53, to replace Finance Minister Guido Mantega, according to a government official who was briefed on her plans and asked not to be named because the discussions were private. Rousseff will announce her new economic team tomorrow, according to an e-mailed statement by the president’s press office.

The move is part of a broader change in cabinet and policies the president pledged for her second term starting Jan. 1.

Rousseff last night met with Levy, former Deputy Finance Minister Nelson Barbosa, who is expected to be appointed as planning and budget minister, and Alexandre Tombini, who will remain as head of the central bank, said a government official with knowledge of the meeting who asked not to be named because of internal policy.

The government is considering an increase in the Cide fuel tax and a cut in unemployment and pension benefits to help reduce the budget deficit, Folha de Sao Paulo reported today, without saying where it received the information. The presidential press office declined to comment.

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