June 3, 2016 / 12:32 AM / 2 years ago

UPDATE 1-Any Brazil tax hikes have to be temporary, Temer says

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SAO PAULO, June 2 (Reuters) - Any tax increases to help plug Brazil’s sweeping budget deficit have to be temporary, interim President Michel Temer said on Thursday, adding that the government is focused on curbing expenditures to rebalance public finances.

In an interview with TV channel SBT, Temer did not rule out reviving the CPMF tax on financial transactions, which Congress scrapped eight years ago. He has long voiced concerns over the use of tax hikes to cut the deficit, saying the move may hamper efforts to pull Brazil out of a harsh and lengthy recession.

Asked whether the country is prepared to cut spending and fix a costly state apparatus, Temer said that efforts to implement short- and long-term deficit-cutting initiatives are gaining momentum. There is a relation of “harmony” between lawmakers and his administration that could facilitate the passage of key economic legislation, he said.

Temer, 75, took the helm of the world’s fifth-most populous nation on May 12, after senators voted to put President Dilma Rousseff on trial for breaking budgetary laws. Temer was Rousseff’s vice president since her first term began in January 2011, and they bitterly broke at the beginning of the year.

After a brief rally in the country’s currency, bonds and stocks at the prospect of a more business-friendly government, investors have become skeptical that Temer will have support to reverse two years of economic contraction and a rising debt burden.

Temer told SBT that citizens need to discuss revamping the pension system or the country risks financial strain in coming years. He endorses the imposition of a minimum age for retirement and a floor for compulsory contributions.

Economists have warned that, without any immediate spending cuts and tax increases, it would take years for Brazil to eliminate a deficit that could top 10 percent of the gross domestic product this year.

Temer’s efforts to bring Brazil out of recession are going ahead as planned despite the loss of two ministers to a corruption scandal. (Reporting by Guillermo Parra-Bernal and Eduardo Simões; Editing by Sandra Maler and Cynthia Osterman)

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