Brazil Seeks Lower Fiscal Target as Recession Depletes Coffers

  • Government will ask Congress to approve smaller budget goal
  • The new target would be 2.8 billion reais, or $760 million

President Dilma Rousseff’s economic team will ask Congress to lower its fiscal target this year, as a deepening recession crimps tax collection efforts and weakens her politically amid impeachment proceedings.

The administration has downgraded its expectations for a so-called primary budget surplus to 2.8 billion reais ($760 million) from 24 billion reais, Finance Minister Nelson Barbosa said Wednesday. This year’s primary budget result could go as low as a deficit of 96.7 billion reais if revenue falls short of forecast and the government carries out some spending and investment programs to revitalize the economy, he said.

Investors and credit rating companies use Brazil’s primary budget result, which excludes payments on interest, to gauge the country’s fiscal health. If lawmakers don’t approve the government’s request and it misses the original budget, the administration will be in violation of fiscal laws and will have to explain to legislators why it fell short.

Raising taxes and cutting spending further to meet the original goal "would be excessive given the current recession," Barbosa said. "Companies aren’t turning the profits needed to meet our tax targets, while families also are cutting back and impacting our collection efforts."

Economists forecast Brazil is falling into its deepest downturn on record, as rising unemployment stymies consumer confidence and worsening fiscal accounts damp investor sentiment. The recession is contributing to an erosion of Rousseff’s approval rating and emboldening her critics in Congress, who in recent weeks have seized on a widening corruption scandal to demand her removal from office.

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