(Adds details on tax breaks and companies affected)
By Alonso Soto and Marcela Ayres
BRASILIA, March 29 The Brazilian government on
Wednesday enacted a bigger spending freeze than anticipated
while keeping tax hikes to a minimum as it seeks to reach a
fiscal deficit target key to regaining the country's
Finance Minister Henrique Meirelles told a news briefing the
government would freeze 42.1 billion reais ($13.48 billion) in
spending to meet its primary budget deficit goal of 139 billion
reais. Government officials initially expected a freeze of about
30 billion reais.
He said the freeze was larger than expected because the
government decided to temporarily drop plans to correct the
calculation of debts owed by the federal government, which would
have saved it about 8.7 billion reais.
Meirelles added the government would end payroll tax breaks
for dozens of sectors, which would yield the government nearly 5
billion reais in revenues. He said that urban passenger
transportation companies, railway and metro companies as well
communications and construction companies, which are big
employers, would keep the tax breaks.
Under pressure by his allies in Congress and business groups
to adopt pro-growth reforms that could snap the economy out of a
deep recession, President Michel Temer chose to keep tax hikes
to a minimum.
Temer will issue a decree to end the tax breaks, but the
measure needs congressional approval to become effective.
Meirelles said he expected the tax breaks to be eliminated early
in the second half of the year.
Some lawmakers from Temer's diverse alliance of more than 12
parties have said eliminating the tax breaks could face same
The tax exemptions implemented by former President Dilma
Rousseff, who was impeached last year on accusation of doctoring
the fiscal accounts, cost the country about 18 billion reais a
Some of the major Brazilian companies that have benefited
from the tax breaks include poultry producer BRF SA,
pulp producer Fibria and planemaker Embraer
, according to a Merrill Lynch research note.
Those hefty tax breaks and years of heavy spending caused
deterioration in Brazil's fiscal accounts, helping push the
economy into its worst recession in a century.
A ballooning overall fiscal deficit, which accounts for
about 10 percent of the country's gross domestic product, led
major rating agencies to strip Brazil of its coveted investment-
grade rating in 2015.
($1 = 3.1225 reais)
(Reporting by Alonso Soto; Editing by Paul Simao and Peter