March 29, 2017 / 1:09 AM / 4 months ago

Brazil delays budget announcement again amid pushback on taxes

3 Min Read

BRASILIA (Reuters) - The Brazilian government's on Tuesday delayed again the announcement of budget cuts and other measures to meet its fiscal target, and politicians and officials said this reflected growing pressure from lawmakers to avoid or limit tax hikes.

This was the second delay in less than a week. Finance Minister Henrique Meirelles on Thursday postponed the disclosure of budget cuts needed to meet a primary budget deficit goal of 139 billion reais ($44.25 billion).

Meirelles has now pushed the decision until Wednesday as his team scrambles to find extra revenues to help limit tax hikes and budget cuts needed to cover a gap of 52 billion reais.

President Michel Temer's options are limited as he tries to balance market demands for austerity with fears among lawmakers in Congress that tax hikes could undermine an economy struggling with its worst recession on record.

"We are trying to avoid tax hikes altogether or implement hikes that will not have a big impact on the economy and inflation," said a close aide to Temer. "We are carefully looking at all extra revenues we can collect to make the decision."

Newspaper Estado de S.Paulo reported on Wednesday that the government was considering doing away with a need for tax hikes by increasing estimated income from a program for Brazilians to receive amnesty by paying taxes and penalties on undeclared assets held abroad.

Still, members of Temer's economic team told Reuters tax increases seem almost inevitable because a painfully slow recovery has reduced tax collection.

Temer's allies in Congress warn that tax hikes would face resistance among his alliance of more than a dozen parties.

"Congress will have difficulties approving tax hikes, so I believe the government needs to look for better options," Efraim Filho, the lower house head of the Democrats Party, an ally party known as DEM, told Reuters.

Other lawmakers said rolling back tax exemptions, which cost the government 18 billion reais a year, would also face resistance in Congress.

The government is searching for tax hikes that would not require legislative approval such as an increase in the Pis/Cofins federal taxes on gasoline and fuel, a government official told Reuters.

There are about 20 billion reais worth of Pis/Cofins tax exemptions across sectors such as food and beverages, healthcare and ethanol that the government could reverse by decree, economists with BNP Paribas said in a report last week.

Meirelles has ruled out hiking the financial transaction tax, known as IOF, on exchange and overall credit operations but left the door open for small tweaks to the levy on other types of credit.

Court decisions allowing the government to auction hydroelectric plants as well a potential change in the way the government calculates its debts could add nearly 19 billion reais in revenues this year, the government has said.

Reporting by Alonso Soto; Editing by Cynthia Osterman

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