(Adds details from report, quotes from finance minister)
BUENOS AIRES, Sept 15 (Reuters) - Argentina will register a primary fiscal deficit equivalent to 4.2 percent of gross domestic product in 2017, higher than previously promised, according to the budget bill the government presented to Congress on Thursday.
After taking office in December, President Mauricio Macri's government promised to reduce the deficit next year to 3.3 percent of gross domestic product from 4.8 percent in 2016 as part of a series of free-market reforms meant to attract investment in Latin America's No. 3 economy.
Finance Minister Alfonso Prat-Gay said the government would seek to lower the deficit further in subsequent years, but said cutting it too aggressively in this budget would harm efforts to spur Argentina's economy, which remains mired in recession.
"We think it would have been a mistake to be more aggressive in deficit reduction, as some sectors of society asked us to do," Prat-Gay said. "We think that would have killed the incipient recuperation."
Achieving the 3.3 percent goal would have required drastic spending cuts, Prat-Gay said. The 2017 budget includes an increase in spending on public works, consistent with a key Macri administration goal to boost infrastructure investment after years of neglect.
The economy will shrink by 1.5 percent in 2016, larger than the 1 percent contraction government officials said they were expecting as recently as last month, according to a copy of the budget.
Prat-Gay reiterated a growth forecast of 3.5 percent in 2017 and the government's expectations for 17 percent inflation next year, down from around 40 percent currently.
Macri's initial deficit target was widely seen as too ambitious, as economists noted that voters grew accustomed to generous welfare spending during eight years of free-spending populism under previous President Cristina Fernandez.
Macri's party does not have a majority in Congress and needs the support of moderate leftists to pass reforms and avoid losing sway in congressional elections to be held next year.
Prat-Gay promised the budget included all the government's planned expenses, and that there would not be any mid-year "surprises," an allusion to widespread allegations that the Fernandez administration doctored economic data and was politically erratic.
"We are not hiding anything," he said.
A Supreme Court decision blocking the government's plans to eliminate home heating gas subsidies was part of the reason the deficit will be larger than expected, Prat-Gay said.
Markets largely did not react to the budget announcement on Thursday, as the figures fell within expectations. (Reporting by Walter Bianchi; Writing by Caroline Stauffer and Luc Cohen; Editing by Chizu Nomiyama and Phil Berlowitz)