WRAPUP 1-Brazil fiscal surplus surprises, but austerity hits job market

viernes 27 de febrero de 2015 16:17 GYT

By Alonso Soto and Brad Haynes

BRASILIA/SAO PAULO Feb 27 (Reuters) - Brazil's bigger-than-expected budget surplus showed on Friday that a new finance minister was delivering on promises, but heavy job losses underscored the likelihood that austerity would push the economy back into recession.

2015 began with the heaviest layoffs in six years, according to labor data on Friday, pushing unemployment to a one-year high in a trend likely to further erode President Dilma Rousseff's slumping popularity.

In a sign of further austerity, the government also announced it was paring back tax breaks on payrolls and export revenue, two measures at the heart of industrial policy during Rousseff's first term.

Leaner tax benefits will likely further shore up the federal budget but at the expense of jobs, underscoring the ascendance of market-friendly Finance Minister Joaquim Levy in a cabinet long sympathetic to labor interests.

"The (tax break) measures didn't yield the expected results and turned out to be extremely expensive," Levy said at a news conference.

In his first month on the job, Levy delivered an overall budget surplus of more than 3 billion reais ($1 billion), the first positive figure in two years, due to spending cuts and expiring tax breaks.

Banco Bradesco chief economist Octavio de Barros cheered Levy's efforts on Twitter, calling the latest fiscal data "spectacular."

Brazil's currency firmed over 2 percent in Friday trading, its strongest session in three months, as the fiscal data helped Levy establish credibility with investors.   Continuación...