Brazil govt cuts $13.5 billion from budget to avoid widening deficit

Wellton Máximo and Paulo Victor Chagas reports from Agência Brasil

The budget cuts were announced by Finance Minister Henrique Meirelles and Planning Minister Dyogo OliveiraFabio Rodrigues Pozzebom/Agência Brasil

In an attempt to help rebalance the country's finance in 2017, the Brazilian government on Wednesday (March 29) announced a $13.5 billion budget cut, and tax hikes in an attempt to avoid widening the government deficit.

With the tax increase, the government wants to ensure it meets the $44.5 billion primary deficit target. The primary deficit is a measure of the negative balance between government revenues and expenditures, net of interest on debt.

The budget cuts were announced by Finance Minister Henrique Meirelles and Planning Minister Dyogo Oliveira.

The government has also announced plans to submit a provisional presidential decree to Congress to abolish payroll tax breaks almost completely. Introduced in 2011, these tax breaks currently benefit businesses in 56 industries, but with the revocation, businesses would have to contribute a 20% rate on payroll into Social Security, instead of 2.5%-4.5%.

The current incentives would still apply to bus and rail mass transit, construction, infrastructure projects, and media and communications. “These are labor intensive industries that will be crucial in recovering the country's employment levels this year,” said Meirelles.

The removal of tax breaks will be a $1.5 billion boost in the government coffers. However, it is not going to become effective until July, due to legal provisions that tax increases can only come into effect after 90 days of signing the relevant law.


Translated by Mayra Borges