April 15, 2014 / 2:40 PM / 4 years ago

UPDATE 3-Brazil plans higher fiscal savings goal for 2015

(Recasts, adds analyst’s comment and surplus goal details)

BRASILIA, April 15 (Reuters) - The Brazilian government said on Tuesday it will aim for a higher fiscal savings goal for 2015, promising more austerity despite increasing worries of rising subsidies and slower growth in tax revenue as the economy flags.

In its 2015 budget guidelines bill, the government said it will pursue a consolidated primary surplus goal equivalent to 2.5 percent of gross domestic product, but set 2 percent as its floor for the year. The two figures are higher than this year’s goal of 1.9 percent of GDP.

The government estimates economic growth of 3 percent in 2015, well above market forecasts of an expansion of only 2 percent.

Still, Finance Minister Guido Mantega said the primary surplus goal could be raised further if the economy picks up speed in 2015.

“We will work for a surplus of 2.5 percent and the minimum will be 2 percent,” Mantega said at a press conference in Brasilia.

This year’s primary surplus goal, which represents the public sector’s net revenues over expenditures before debt interest payments, is considered out of reach by many analysts who say the government will not be able to save enough money during an election year.

The possibility of more energy subsidies next year to help struggling electricity distributors and expectations for the economy to remain subdued could jeopardize the government’s plans to meet its new target in 2015.

“The economy is growing slowly and there are no expectations for an increase in tax revenues ... there are no indications that these goals can be achieved under the current policies,” said Alcides Leite, an economics professor at Trevisan Business School in Sao Paulo.

The primary surplus, which includes results from the federal government, states and municipalities and social security system, is seen as a key measure of a country’s capacity to repay its debt.

The government will need to save up to 143.3 billion reais this year to meet its primary surplus goal this year. Most of those savings will come from the federal government, according to a finance ministry presentation.

A rapid erosion of the country’s finances under President Dilma Rousseff prompted Standard & Poor’s to cut Brazil’s rating closer to junk status back in March.

Rousseff, a left-leaning economist who is expected to run for re-election in October, has promised to rein in spending to meet this year’s target and regain the confidence of investors worried about the country’s economic fundamentals.

Andre Perfeito, chief economist with Gradual Investimentos, said next year’s goal is not impossible, but the government needs to show resolve to convince markets it can achieve the target.

“The lack of policy credibility has forced investors to be much more cautious,” Perfeito said in a note to clients. (Reporting by Luciana Otoni and Bruno Federowski; Writing by Alonso Soto; Editing by Chizu Nomiyama, W Simon and Jan Paschal)

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