Brazil’s Meirelles Calls for Tighter Budget to Avoid More Taxes

Brazil’s Finance Minister Henrique Meirelles renewed an appeal for the approval of key austerity measures aimed at regaining investor confidence and reviving Latin America’s largest economy.

Brazil’s tax burden would have to keep growing, stifling an economy that is already mired in its deepest recession in decades, if the government fails to promote structural adjustments to its budget, including a comprehensive pension reform, Meirelles said at a speech in Rio de Janeiro. He didn’t rule out temporary tax increases in the short term.

“If necessary we will have to raise taxes temporarily, but only if truly necessary,” Meirelles told reporters. The decision to raise or not taxes will be made by August 31, a deadline for the government to conclude its analysis on future fiscal revenue and expected proceeds of privatizations that may take place in the next few months, he said.

Brazil has been struggling to rein in a record budget deficit as the worst recession in decades reduces tax receipts. Acting President Michel Temer’s economic team is trying to push bills through Congress that would limit public spending growth to the rate of the previous year’s inflation.

Brazil estimates the central government will post a deficit before interest payments of 170.5 billion reais this year, the worst in history.

“The economic team’s proposal to limit overall spending growth to inflation constitutes the single most important measure to convince market participants that fiscal imbalances are being tackled,” Eurasia Group analysts led by Christopher Garman wrote in a July 21 note. “Legislators, meanwhile, are receptive to the government’s proposal. As such, the odds of congress approving some version of the reform remain very high.”

Even if the bill is approved, the outlook is for a wider deficit: the government is targeting a primary budget gap of 139 billion reais in 2017.

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