BRASÍLIA: Brazil’s Finance Minister Joaquim Levy is targeting a primary fiscal surplus equivalent to 1.1 percent of GDP this year. The primary result excludes payments on interest.
Brazil is stepping up efforts to shrink a widening budget gap by cutting spending and raising taxes on banks.
The government is freezing 69.9 billion reais ($22.6 billion) in spending from this year’s budget, the Budget Ministry said on Friday. It made the announcement hours after the government said it would raise taxes on profits at banks, brokerages and credit-card processors to 20 percent from 15 percent.
President Dilma Rousseff is trying to rein in the largest budget gap in 16 years that threatens Brazil’s investment grade. While Friday’s measures will help, the slowing economy and reluctance among lawmakers to approve tax increases and cuts to labor benefits are hindering her efforts, Newton Rosa, chief economist at Sul America Investimentos Dtvm SA, said.
“Whether the freeze will be enough is a question mark,” he said. “You can’t work miracles in a budget where 90 percent is earmarked. There is limited discretionary space.”
Stocks in Brazil’s largest banks fell sharply on Friday after the government raised taxes on industry profits, sending the benchmark Ibovespa index down 1.3 percent on the day. The index fell 5 percent this week, the worst decline since December.
In the currency markets, the real dropped as much as 2.1 percent and ended the day at 3.09 per U.S. dollar. The cost to insure the nation’s debt for five years rose less than 1 basis point to 222 basis points.
