Brazil assessing whether to cut key fiscal goal in 2014

September 13
1:01 PM 2014

The Brazilian government is assessing whether to cut its most closely watched fiscal target in 2014 because revenues came in worse than expected and onetime expenditures climbed, Treasury chief Arno Augustin told Reuters on Friday.

This is the first time an official has publicly acknowledged that the government could reduce its 2014 primary budget surplus target of 99 billion reais ($42.5 billion), or 1.9 percent of gross domestic product. Markets have widely expected such a move.

When asked if the government had ruled out adjusting its primary surplus target, Augustin said "I cannot give you my opinion because the government is discussing the subject and when it reaches a decision it will be released in a document."

Asked if the government was changing its stance and thus could alter the target, he said: "Evidently, if revenues came below what we expected, that means that we need to reassess... we need to do something."

A few hours after the interview, the Treasury issued a statement saying that Augustin's remarks had been misinterpreted and that he could not give an opinion on whether to change the fiscal target before the upcoming release of a government report on revenues and expenditures on Sept. 22

Most market economists are convinced that President Dilma Rousseff will again fail to meet the fiscal target as a contracting economy slows tax collection while public spending picks up ahead of October's presidential election.

The primary budget surplus represents the public sector's excess revenue over expenditures before debt payments. In the first seven months of 2014, the government has been able to meet just 25 percent of its primary surplus target for the whole year.

The shrinking primary surplus has become a hot topic in the presidential race. The main opposition candidates have accused Rousseff of relaxing fiscal discipline, which over the past decade brought stability to an economy once plagued by crises.

Many analysts blame Augustin, a friend and close adviser of Rousseff, for a string of accounting tricks in recent years that have hurt the government's fiscal credibility.

In March, Standard & Poor's cut Brazil's debt rating closer to junk status, partly because of the country's deteriorating finances. Another ratings agency, Moody's Investors Service, threatened to do the same on Tuesday.

After missing the primary surplus goal for two straight years, Rousseff now says that if elected, her government would lower spending next year to regain investors' trust.

Augustin said it is normal for a government to adjust its finances at the start of another administration but declined to give more details, saying the plan was outlined in the 2015 budget bill.

An expected drop in payouts to struggling energy distributors and producers in the drought-hit northeast would help bolster savings in 2015, Augustin said. He added that tax revenues are also likely to improve as the economy picks up.

"I don't believe that there are facts that could lead someone to believe that what we went through in the first half of the year is a trend," Augustin said. "We expect an economic recovery, which is linked to fiscal results."

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