Brazil may widen 2018 deficit goal as recovery disappoints: sources

BRASILIA (Reuters) - Brazil’s government could widen its fiscal deficit target for 2018 as revenue collection remains weak given the slow pace of economic recovery, two officials involved in the policy discussion said on Wednesday.

Brazil's President Michel Temer listens to questions from the media during LAAD, the biggest military industry expo in Latin America in Rio de Janeiro, Brazil, April 4, 2017. REUTERS/Pilar Olivares

It was the first time members of Brazil’s economic team have acknowledged a possible change to the primary deficit goal of 79 billion reais ($25.54 billion) for next year, amid efforts by the administration to rebalance its accounts after nearly three years of recession.

“We are keeping 79 billion but with the tendency to revise it,” said one of the officials, who asked for anonymity because he is not allowed to speak publicly. “We will need to seek extraordinary revenues in 2018.”

The market is forecasting a deficit of 118.3 billion reais next year, according to estimates collected by the finance ministry.

President Michel Temer was forced to cancel payroll tax breaks for 50 sectors and freeze 42 billion reais in budget spending to meet this year’s deficit goal of 139 billion reais.

A painfully slow recovery from the country’s deepest recession ever has undermined tax collection and called into question Temer’s capacity to significantly reduce a deficit that cost Brazil its investment grade rating.

The official said the government has ruled out tax increases to meet this or next year’s goals, but stressed authorities will have to seek one-off revenues such as concession fees and the sale of state assets.

To meet this year’s budget, the government considered increasing the Pis/Cofins federal taxes on gasoline, but political pressure forced Temer to backtrack.

With elections looming in 2018 and a sweeping corruption investigation ensnaring dozens of politicians, Temer’s allies in Congress are calling for more action to revive the economy.

A slew of negative data in January raised concerns, but the government still believes the economy will return to positive territory in the first quarter, the official said.

To alleviate its finances this year the government aims to collect more than 10 billion reais in revenues from a program to give amnesty to Brazilians who pay taxes and fines on undeclared assets held abroad, the official said.

The government has until April 15 to deliver its 2018 budget guidelines officially setting its primary deficit goal for next year.

($1 = 3.0928 reais)

Reporting by Alonso Soto; Editing by Meredith Mazzilli