Tags: Brazil | Tax Increase | Budget Cuts

Brazil Facing Tax Increase, Budget Cuts

Friday, 09 January 2015 11:05 AM

Brazil’s government may have to increase tax collection if spending cuts fail to slow inflation and boost growth, Finance Minister Joaquim Levy said.

“We will probably need to think about re-balancing some taxes, because some of them were reduced a while ago,” Levy wrote in a question and answer session on Facebook Inc. “That revenue is now needed.”

President Dilma Rousseff pledged to control spending and contain inflation after billions in tax cuts and subsidized credit failed to boost growth in her first term. Since winning re-election in October by the narrowest margin since at least 1945, she has capped monthly spending, cut pension and labor benefits and raised interest rates on loans from state development bank BNDES.

The government’s objective is to increase the primary budget surplus target, which excludes interest payments, to 1.2 percent of gross domestic product this year from a deficit of 0.2 percent in the 12 months through November. Possible tax measures would be taken cautiously and only after other possibilities have been explored, Levy wrote today.

Swaps on contracts due in January 2016, the most traded in Sao Paulo today, fell three basis points, or 0.03 percentage point, to 12.69 percent at 1:10 p.m. local time. The real appreciated 0.4 percent to 2.6515 per U.S. dollar.

While inflationary pressure will rise in January due to seasonal increases of education, transportation and other costs, budget adjustments will help slow inflation next year, according to the minister, who replaced Guido Mantega this month.

‘Slow Inflation’

“In order to slow inflation, it’s necessary that the government not spend too much,” Levy wrote.

Annual inflation moderated to 6.41 percent in December, within the target range for the first time in five months, the national statistics agency reported today. Inflation has remained above the midpoint of the 2.5 percent to 6.5 percent target band since Rousseff entered office in 2011.

The price increases have eroded business and consumer confidence, hampering economic gains. Analysts surveyed by Bloomberg forecast Brazil’s economy will expand 0.85 percent this year after increasing an estimated 0.2 percent in 2014. Growth in both instances is less than half the Latin American average, according to the survey.

Standard & Poor’s in March last year downgraded Brazil’s credit rating to one level above junk, citing the economic slowdown and deteriorating fiscal accounts. Moody’s Investors Service in September lowered its outlook on the Baa2 rating to negative. That is the second-lowest investment grade.

To contact the reporter on this story: Raymond Colitt in Brasilia Newsroom at rcolitt@bloomberg.net To contact the editors responsible for this story: Andre Soliani at asoliani@bloomberg.net Randall Woods, Harry Maurer

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Brazil's government may have to increase tax collection if spending cuts fail to slow inflation and boost growth, Finance Minister Joaquim Levy said.
Brazil, Tax Increase, Budget Cuts
Friday, 09 January 2015 11:05 AM
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