CORRECTED-UPDATE 2-Brazil to meet budget target by deducting investments
(Corrects target in 2nd paragraph to say reais, not dollars)
* Central bank official recognizes accounting shift
* Economic stimulus compromising fiscal target as in 2010
* Sept. surplus 1.6 bln reais vs. 4.2 bln reais f'cast
By Silvio Cascione and Luciana Otoni
BRASILIA/SAO PAULO, Oct 30 (Reuters) - Brazil will achieve its 2012 budget target only by deducting spending on some public investments, a central bank official said on Tuesday, suggesting that aggressive economic stimulus would compromise a budget target as it did in 2010.
Weak growth in the world's sixth-largest economy and tax breaks to stimulate struggling industries have jeopardized President Dilma Rousseff's 139.8 billion reais ($68.9 billion) primary surplus target, which equals about 3.1 percent of GDP.
In the first nine months of the year the government reached only 54 percent of the target, meaning it would need to average more than 21 billion reais in surplus in each of the next three months to meet its goal under the same accounting as last year.
Brazil's primary budget surplus fell sharply in September from a year ago to 1.591 billion reais in September, the central bank said earlier on Tuesday, well below analysts' median forecast of 4.2 billion reais.
The only way for Brazil to achieve its budget target now seems to be a deduction of up to 25 billion reais in some public investments. The limit was set by this year's budget law, but authorities insisted until Monday that the government wouldn't need to resort to it.
"The central bank works considering it will fulfill the target by using the prerogative of deducting (expenditures) from the target," Tulio Maciel, the central bank's head of economic research, told jornalists at a press conference.
The primary budget surplus is a gauge closely watched by investors because it measures a country's ability to service its debt. It represents the excess of revenue over expenditures before interest payments are taken into account.
Meeting or exceeding the surplus goal has been the government's top fiscal accounts priority for more than a decade.
Rousseff has cut billions of reais in taxes for companies and consumers this year in a bid to revive the economy. Last week she extended a tax reduction for local carmakers through the end of the year.
Three official sources had told Reuters in September that Brazil was in danger of narrowly missing its 2012 primary budget surplus target, likely forcing the government to use different accounting methods to reach it.
The last time Brazil had to tweak the numbers was in 2010 after a surge in spending by Rousseff's predecessor, Luiz Inacio Lula da Silva.
Treasury Secretary Arno Augustin had said on Monday that the government still expected to meet its budget target as a pick up in the economy may help boost tax revenues.
In the 12 months through September, the primary surplus represented 2.30 percent of gross domestic product, down from a previously reported 2.46 percent in August. It was the lowest 12-month trailing figure so far this year and marks a steep decline from this year's peak of 3.31 percent in February.
Brazil's overall budget balance, which includes interest payments, posted a deficit of 12.254 billion reais in September, narrower than the 16.121 billion reais deficit in August.
Debt servicing costs have been declining after the central bank cut interest rates ten times in a row since August 2011 to a record low of 7.25 percent.
The public debt-to-GDP ratio rose to 35.3 percent in September from 35.1 percent in August.
The forecasts of 12 analysts polled by Reuters for the primary budget surplus ranged from a deficit of 0.7 billion reais to a surplus of 5.5 billion reais. (Additional reporting by Tiago Pariz, Anthony Boadle and Luciana Otoni in Brasilia; Editing by W Simon and Chizu Nomiyama)
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