Falls in GDP and revenue justify deficit review, says Levy

Finance Minister Joaquim Levy announced today (Oct. 27) that the increasing reductions in gross domestic product (GDP) and the drop in tax revenues led the government to review the deficit target for this year. The minister pointed out that due to decline in revenue, the cost-cut measures adopted to reduce spending have been limited.

Earlier, the rapporteur of the bill to amend the 2015 fiscal target, congressman Hugo Leal, announced that the 2015 budget should have a $13.24 billion primary deficit target—0.8% of the GDP. According to the deputy, the figure does not include delays to transfer funds to public banks. Initially, the target for the federal, state, local and state-led companies levels stood at $16.95 billion (1.1% of GDP) for 2015. In July, due to the drop in federal tax revenue, the economic staff lowered the target to $2.2 billion (0.15% of GDP).

Attending the Brazil Summit, in São Paulo, organized by the British magazine The Economist, Levy pointed out that, despite the increasing reduction of the target, "the government had to cut its own flesh. We had the largest cost cuts of history, $20.45 billion (2% of GDP). This year in discretionary costs—which are possible to control— we are spending 10% less than the nominal value from last year," he reported.

According to the minister, there was no surprise to have the rating agency Moody's anticipating the figures for the deficit forecast, because the information provided by the government led to this estimate. "Our level of transparency allows the market to make very accurate analysis. There is nothing to hide about the fiscal situation," he declared.

The minister once again defended the fiscal balance to recover economic growth. And compared the current moment with 1999, when Brazil also faced a drop in GDP's growth. For Levy, the difference is that currently we encounter a more comfortable situation. "Since we have $270 billion [of external debt] today, people may not understand the absolute urgency of taking fiscal measures to balance the economy and build an atmosphere of trust that enables the recovery of growth," he stated. He mentioned that the key measure adopted back in 1999 was to extend the period for the MF tax (Temporary Contribution on Financial Transactions).

Translated by Amarílis Anchieta

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