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UPDATE 2-Brazil falls far short of 2012 primary surplus budget goal
January 30, 2013 / 12:40 PM / 5 years ago

UPDATE 2-Brazil falls far short of 2012 primary surplus budget goal

* Primary surplus 104.951 bln reais vs 139.8 bln reais goal

* 22.252 bln reais Dec surplus vs 5.5 bln reais Nov deficit

* Gov’t considering changes to primary goal to boost economy

By Alonso Soto and Luciana Otoni

BRASILIA, Jan 30 (Reuters) - Brazil failed to reach its primary budget surplus goal last year in an expected shortfall that has raised worries about the government’s commitment to the fiscal discipline that helped the Latin American giant secure a decade of economic stability.

Brazil posted a primary surplus of 104.951 billion reais ($53 billion) last year, the equivalent of 2.38 percent of gross domestic product, according to central bank data released on Wednesday. That is way below the annual target of 139.8 billion reais, or about 3.1 percent of GDP.

For months officials have said the country was not going to meet the target after the government handed out billions of dollars in tax incentives last year to revive an economy struggling with high production costs and a fragile global outlook.

As the recovery continues to disappoint, the government of President Dilma Rousseff is debating whether to lower the primary surplus target to free up funds for investment in a bid to bolster the economy and bring clarity to public accounts.

Brazil posted a surplus of 22.252 billion reais in December after a deficit of 5.515 billion reais in November.

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.

The government has resorted to alternative accounting methods to meet its primary surplus target on paper. Brazilian law allows the government to exclude some public investments from its accounts to reach the target, though that methodology is not recognized by some foreign observers like the International Monetary Fund.

In contrast, the government surpassed its primary target in 2011, posting a primary budget surplus of 128.71 billion reais or 3.11 percent of GDP. That year the government even increased its target by 10 billion reais to show its commitment to fiscal discipline.


Treasury Secretary Arno Augustin said on Tuesday that the government was considering making “improvements” to the target, but did not say if that meant the target would be formally lowered. The government would need to introduce new legislation to lower this year’s primary goal, which was set at 155.9 billion reais, or 3.1 percent of GDP.

The government is planning to cut more taxes in a bid to support a still sluggish recovery in Latin America’s top economy. The slow-moving economy will also likely cut hit tax

collection this year even as the government goes after big Corporate tax payers to make up for loss revenue.

In an interview with Reuters, Augustin said that the government could even consider scraping the primary target for a goal based on its overall budget balance.

Brazil’s overall budget balance, which includes interest payments, posted a surplus of 3.15 billion reais in December from a deficit of 21.84 billion reais in November. In December of 2011, the government posted a overall deficit of 18.64 billion reais.  Last year the country posted an overall budget deficit of 108.9 billion reais, equivalent to 2.47 percent of GDP.

Most analysts and even rating agencies agree that a reduction of the target is unlikely to jeopardize the country’s solid finances, which stand in stark contrast to those of highly indebted countries in the euro zone and the United States.

Even after failing to meet the target last year the government was still able to cut its debt burden to a new low of 35.1 percent of GDP in 2012. In a bit over a decade Brazil has been able to nearly halve its debt burden due to the high surpluses and a buoyant economy.

However, some fear relaxing the target could trigger spending pressures from public union workers and legislators who might take it as a green light to spend more ahead of next year’s general elections. That would fuel inflation, which is already speeding up.

Finance Minister Guido Mantega opposes the idea of formally lowering the target, government sources recently told Reuters. Instead he prefers to continue the creative accounting that Brazil has been using to meet the target on paper.

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