February 5, 2016 / 2:33 PM / 3 years ago

Brazil mulls flexible 2016 fiscal goal as revenues drop: source

BRASILIA (Reuters) - Brazil is considering a flexible fiscal surplus target for this year as plummeting revenue and political turmoil hamper efforts to rebalance its public accounts, an official familiar with the matter told Reuters.

Brazil's new Finance Minister Nelson Barbosa looks on during his inauguration ceremony at Planalto Palace in Brasilia, Brazil, December 21, 2015. REUTERS/Ueslei Marcelino

President Dilma Rousseff’s government was studying a bill to set a band for its primary surplus goal as well as a cap on public spending starting this year, said the official who asked for anonymity because he was not allowed to speak publicly.

The primary balance measures the surplus, or deficit, in government finances before servicing its debts.

The government is struggling to raise revenue to meet its primary surplus goal of 30.5 billion reais ($7.84 billion), or the equivalent of 0.5 percent of gross domestic product.

A political deadlock in Congress is delaying the approval of a new tax on financial transactions, which the government considers crucial to meet the goal.

Finance Minister Nelson Barbosa has said he was working on a proposal to make the target flexible in the coming years to avoid steep spending cuts when revenues drop sharply.

“The urgency of the situation is forcing the government to consider bringing forward these fiscal reforms,” said the official. “Barbosa is aware of market concerns. The idea is to be tough with spending, but allow some goal flexibility.”

He added that the government also plans to announce next week a freeze of around 50 billion reais ($12.86 billion) in spending this year.

The spending freeze is an annual budget practice that reflects the government’s commitment to fiscal austerity. That freeze would be lower than the 69.9 billion reais withheld last year.

The idea of a flexible fiscal target has been criticized by many investors and economists who believe the proposal will further erode the government’s fiscal credentials.

To gain political support in Congress, the government is considering linking the approval of those fiscal reforms to a relief in the debts of financially strapped states, the source said. The government could extend for ten years the maturity of the debt that states hold with the federal government.

The media office of the finance ministry did not respond to a request for comment. A planning ministry spokeswoman said the government had not yet decided on the size of the freeze.

The rapid deterioration of its finances after years of heavy spending and steep tax cuts under Rousseff has hurt investor confidence in the once-booming economy.

($1 = 3.8880 Brazilian reais)

Reporting by Alonso Soto; Editing by Jeffrey Benkoe and Bernadette Baum

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