Brasilia: Brazil will not reach its 2016 fiscal savings target unless Congress approves a new financial transaction tax scorned by the private sector, a senior government official told Reuters on Friday.
The member of President Dilma Rousseff’s economic team, who declined to be named because he was not authorised to speak publicly, acknowledged that the government is already struggling to meet this year’s fiscal goal as spending cuts reach their limit.
“Without this tax we will not meet our 2016 fiscal target,” said the official. “When everyone sees the numbers and what we are doing to limit spending, they will understand this is the only alternative we have.”
The government will send Congress on Monday a bill to reinstate a 0.38 per cent tax on financial transactions, known as CPMF, to raise about 68 billion reais ($18.99 billion, Dh69.99 billion) a year in order to plug the country’s fiscal gap.
The central government’s primary budget surplus, savings before debt interest payments, target is 34 billion reais for 2016.
The proposal was harshly criticised by senior lawmakers in an already rebellious Congress and business leaders who said the tax will only crimp an economy mired in recession.
Along with the tax hike proposal the government will unveil its 2016 budget bill that will slightly cut non-obligatory spending, the official said.
“The government is making a great effort,” said the official who is directly involved in fiscal policy decisions. “There is no more room to cut.”
About 90 per cent of Brazil’s overall expenditures are earmarked by law to pension, health and education payments.
The Brazilian economy shrank 1.9 per cent in the second quarter, sinking into recession after two quarters of consecutive contractions. Many economists believe Brazil will not see signs of a recovery until well into 2016.
The official acknowledged that the country is at risk of recording another negative growth print in 2016, marking the first back-to-back economic contractions since the aftermath of the Great Depression in the 1930s.
