CAMPOS DO JORDÃO, Brazil, Aug 29 (Reuters) - Finance Minister Joaquim said on Saturday he now favors reviving an old tax on financial transactions to cope with Brazil’s fiscal crunch in a slumping economy, and warned that without new taxation the country could face a crisis like Greece‘s.
”Nobody can agree that increased spending without increased taxation is viable,“ Levy said at a financial markets conference organized by Sao Paulo bourse operator BM&FBovespa SA . ”If you want to become Greece and say no to any kind of tax, that will have consequences.
The Brazilian government is planning to send Congress a bill reintroducing a tax known as CMPF, a 0.38 percent levy on financial transactions, known as CPMF, to raise about 68 billion reais ($18.99 billion) a year to plug a gaping fiscal deficit.
Levy had said in June that we was not planning to revive the CMPF, an unpopular tax that was abolished by Congress in 2007.
But the world’s seventh largest economy has slid into a recession that is deeper than expected and fiscal revenues are dropping to the point where new taxation is vital to meet fiscal savings targets in 2016 and 2017.
The economy shrank 1.9 percent in the second quarter, sinking into the worst recession since the Great Depression of the 1930‘s. Many economists believe Brazil will not see signs of a recovery until well into 2016.
A senior government official told Reuters on Friday that Brazil will not reach its 2016 fiscal savings target unless Congress approves reinstating the CPMF, and he acknowledged Brazil is already struggling to meet this year’s fiscal goal as spending cuts reach their limit.
Opposition leaders and even members of President Dilma Rousseff’s main ally, the PMDB party, have said they oppose bringing back the CPMF and will vote down the government’s proposal to reinstate the tax.
To avoid becoming the next Greece, Brazil must face the reality of its deteriorated fiscal situation and then create the bases for a return to growth, Levy said.
He dismissed views that the austerity drive he is leading has pushed Brazil into recession, which he said is the result of the uncertainty prevailing among investors and businesses.
Levy told reporters he does not believe the recession will last two years, and some industries are showing signs of recovery and will see a turnaround by the end of the year. He cited the paper, glass and non-ferrous sectors.
He urged Brazilian entrepreneurs not to stand around idle waiting to see if Brazil loses its investment-grade credit rating. “Everyone is playing bingo with the investment grade, that can’t be,” Levy said. (Reporting by Anthony Boadle, Editing by Franklin Paul)