July 25, 2017 / 5:01 PM / a year ago

UPDATE 1-Brazilian judge suspends fuel tax hike, gov't can appeal

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BRASILIA, July 25 (Reuters) - A Brazilian federal judge on Tuesday suspended a large fuel tax increase announced by the government last week to reduce a budget deficit, according to a court ruling seen by Reuters.

The government can appeal the judge’s decision. The increase in the federal PIS/Cofins social contribution tax on gasoline, diesel and ethanol was expected to raise an estimated 10.4 billion reais in additional revenues this year.

The decision by Federal Judge Renato Borelli shows the vast and unpredictable discretionary power of Brazil’s lower courts. Other judges in recent years blocked nominations of cabinet ministers and suspended messaging services, briefly disrupting communication in the largest country in South America.

Borelli said the tax increase should have been made by federal law and not executive decree. The government chose to issue a decree to bypass lawmakers’ strong opposition to tax hikes ahead of an election year.

Brazil is targeting a budget deficit of 139 billion reais this year before interest payments. The deficit in the 12 months through May reached 167.6 billion reais, equivalent to 2.59 percent of gross domestic product.

The Finance Ministry did not respond to a request for comment. Last week it said the increase was “absolutely necessary to preserve the fiscal adjustment and maintain the economy’s trajectory towards recovery.”

Reporting by Ricardo Brito; Writing by Silvio Cascione; Editing by Richard Chang

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